The index model has been estimated for stocks A and B with the following results:

R_A = 0.01 + 0.5R_M + e_A R_B = 0.02 + 1.3R_M + e_B Standard deviation of the market return s_M = 0.25 Standard deviation of firm specific return for stock A s(e_A) = 0.20

Standard deviation of firm specific return for stock B s(e_B) = 0.10

I. The standard deviation of the return for stock A is 0.2539.

II. The standard deviation of the return for stock B is 0.3400.

Which of the following is correct?

a.

Statement I is correct, Statement II is incorrect.

b.

Statements I and II are both incorrect.

c.

Statement I is incorrect, Statement II is correct.

d.

Statements I and II are both correct.