Using the single-index model and monthly returns, an analyst has estimated:

The alpha of stock 1 is 0.03 and the alpha of stock 2 is 0.04. The beta of stock 1 is 0.5 and the beta of stock 2 is -0.4.

The annually compounded risk-free rate is 3%.

Consider the following statements.

I. The value of ALPHA for stock 1 reported in a standard industry book would be greater than 0.03.

II. The value of ALPHA for stock 2 reported in a standard industry book would be greater than 0.05.

Which of the following is correct?

a.

Statement I is correct, Statement II is incorrect.

b.

Statements I and II are both incorrect.

c.

Statements I and II are both correct.

d.

Statement I is incorrect, Statement II is correct.