The annual risk-free rate of return over the period was 4%, and the average annual return of the market portfolio was 12%. The standard deviation of the market portfolio returns was 20%. The table below reports the statistics and the regression estimation results of the single- index model for annual excess returns of the two funds.

REQUIRED:

Calculate the T-square measure for each fund.

Fund A 10.6% 31% Fund B 8.4% 20% Average annual excess return Standard deviation of annual excess returns Single-index model estimates Standard deviation of the model residuals 1% + 1.2 (RM-18) 22% 2% + 0.8 (RM-1) 9%