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Problem #4: Consider the two (excess return) index model regression results for A and B: Asset Regression equation R-Square Residual Standard Deviation A RA =

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Problem #4: Consider the two (excess return) index model regression results for A and B: Asset Regression equation R-Square Residual Standard Deviation A RA = 1% + 1.2 * RM 0.576 10.3% B R3 = -2% + 0.8 * RM 0.436 9.1% Part A: Which stock has more firm-specific risk? Part B: Which has greater market risk? Part C: For which stock does market movement explain a greater fraction of return variability? Part D: If re were constant at 6% and the regression had been run using total rather than returns, what would have been the regression intercept for stock A

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