Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 2.4%+0.85Rм+ еA = RB -2.4% +1.30Rм + еB = σM = 25%; R-squareA = 0.17; R-square B = 0.11 Break down the variance of each stock to the systematic and firm-specific components. Note: Do not round intermediate calculations. Calculate using numbers NOT in decimal form. For example use "20" for calculation if standard deviation is provided as 20%. Round your answers to nearest whole number. Systematic Firm-specific Risk for A Risk for B
Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA 2.4%+0.85Rм+ еA = RB -2.4% +1.30Rм + еB = σM = 25%; R-squareA = 0.17; R-square B = 0.11 Break down the variance of each stock to the systematic and firm-specific components. Note: Do not round intermediate calculations. Calculate using numbers NOT in decimal form. For example use "20" for calculation if standard deviation is provided as 20%. Round your answers to nearest whole number. Systematic Firm-specific Risk for A Risk for B
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA 2.4%+0.85Rм+ еA
=
RB -2.4% +1.30Rм + еB
=
σM = 25%; R-squareA = 0.17; R-square B = 0.11
Break down the variance of each stock to the systematic and firm-specific components.
Note: Do not round intermediate calculations. Calculate using numbers NOT in decimal form. For example use "20" for calculation
if standard deviation is provided as 20%. Round your answers to nearest whole number.
Systematic
Firm-specific
Risk for A
Risk for B](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2Fbbe14441-ed03-4b80-8caa-e4d18877662f%2F940221e7-8f7c-483f-8474-f8f2c693983c%2Fygtjvk7_processed.jpeg&w=3840&q=75)
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results:
RA 2.4%+0.85Rм+ еA
=
RB -2.4% +1.30Rм + еB
=
σM = 25%; R-squareA = 0.17; R-square B = 0.11
Break down the variance of each stock to the systematic and firm-specific components.
Note: Do not round intermediate calculations. Calculate using numbers NOT in decimal form. For example use "20" for calculation
if standard deviation is provided as 20%. Round your answers to nearest whole number.
Systematic
Firm-specific
Risk for A
Risk for B
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