Suppose that the index model for stocks A and B is estimated from excess returns with the following results:

• R_A = 3% + .7R_M + e_A
• R_B = -2% + 1.2R_M + e_B
• M = 20%; R-square_A = .20; R-square_B = .12

Question 7:What is the standard deviation of Stock A?

Question 8: What is the standard deviation of Stock B?

Question 9: Break down the variance of Stock A to the systematic risk components.

Question 10: Break down the variance of Stock A to the firm-specific risk components.

Question 11: Break down the variance of Stock B to the systematic risk component

Question 12: Break down the variance of Stock B to the firm-specific risk components.

Question 13: What is the covariance between the two stocks?

Question 14: What is the correlation coefficient between the two stocks?