Question
The index model has been estimated for stocks A and B with the following results: R A = 0.01 + 0.8R M + e A
The index model has been estimated for stocks A and B with the following results: RA= 0.01 + 0.8RM+ eA RB= 0.02 + 1.1RM+ eB
The standard deviation of the market index is 26%; the residual standard deviation of the error terms for stock A is 25%;the residual
standard deviation of the error termsfor stock B is 18%. What is the covariance between the returns on stocks A and B?
What is your best estimate of the total variance of the excess returns on stock A?
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Financial Management Core Concepts
Authors: Raymond Brooks
4th Edition
134730417, 134730410, 978-0134730417
