Question
The index model has been estimated for stocks A and B with the following results: R A = 0.03 + 0.85R M + e A
The index model has been estimated for stocks A and B with the following results: RA= 0.03 + 0.85RM+ eA RB= 0.01 + 1.55RM+ eB
The standard deviation of the market index is 27%; the residual standard deviation of the error terms for stock A is 22%;the residualstandard deviation of the error termsfor stock B is 30%. What is the covariance between the returns on stocks A and B?
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Introduction to Finance Markets, Investments and Financial Management
Authors: Ronald W. Melicher, Edgar A. Norton
16th edition
1119398282, 978-1-119-3211, 1119321115, 978-1119398288
