Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 4.0% +0.50RM + eA RB = -1.2% + 0.70RM + eB \sigma M = 17%; R-squareA = 0.26; R-squareB = 0.18 Break down the variance of each stock to the systematic and firm - specific components. Note: Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Round your answers to nearest whole number.

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA
= 4.0% +0.50RM + eA RB = -1.2% + 0.70RM + eB \sigma M = 17%; R-squareA = 0.26; R-squareB = 0.18
Break down the variance of each stock to the systematic and firm - specific components. Note: Do not round
intermediate calculations. Calculate using numbers in decimal form, not percentages. For example use "20" for
calculation if standard deviation is provided as 20%. Round your answers to nearest whole number.
Transcribed Image Text:Suppose that the index model for stocks A and B is estimated from excess returns with the following results: RA = 4.0% +0.50RM + eA RB = -1.2% + 0.70RM + eB \sigma M = 17%; R-squareA = 0.26; R-squareB = 0.18 Break down the variance of each stock to the systematic and firm - specific components. Note: Do not round intermediate calculations. Calculate using numbers in decimal form, not percentages. For example use "20" for calculation if standard deviation is provided as 20%. Round your answers to nearest whole number.
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