Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

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 residual

standard deviation of the error termsfor stock B is 30%. What is the covariance between the returns on stocks A and B?

Enter your answer rounded to two decimal places.

Using the data from problem 1, what is your best estimate of the total variance of the excess returns on stock B? Enter your answer rounded to two decimal places. Do not enter % in the answer box.

Usingthe data from problem1,what is your best estimate of the R-Squared in theregressionofstock Bon themarketindexM?Enter your answer asa decimalrounded tofour decimal places.

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Technical Analysis The Complete Resource For Financial Market Technicians

Authors: Charles Kirkpatrick, Julie Dahlquist

3rd Edition

0134137043, 978-0134137049

More Books

Students also viewed these Finance questions

Question

What is one of the skills required for independent learning?Explain

Answered: 1 week ago

Question

1. Build trust and share information with others.

Answered: 1 week ago