The standard deviation of the market index is 25%, and the regression analysis of the single index model for Stocks A and B show the following results:

R_A = 0.01 +1.39R_M +e_A , R² =56%

R_B = 0.01 +0.8R_M +e_B , R² =72%

The covariance between Stock A and Stock B is _________ %.( round your answer to two decimal places)

Assume CAPM holds. Which of the following statements are correct?

Check All That Apply

• Stocks with zero betas have expected return equal to the risk-free rateStocks with zero betas have expected return equal to the risk-free rate

• A security with high volatility must have high beta.A security with high volatility must have high beta.

• A portfolio comprised of high-beta securities must have high beta.A portfolio comprised of high-beta securities must have high beta.

• You can create a portfolio with beta=0.8 by investing 80% of the fund in the market index and 20% of the fund in T-billsYou can create a portfolio with beta=0.8 by investing 80% of the fund in the market index and 20% of the fund in T-bills

• The expected return of a negative-beta asset should be negative.The expected return of a negative-beta asset should be negative.

• A negative-beta asset can be used for hedging market risk.A negative-beta asset can be used for hedging market risk.