Corporate Fin Focused Approach
5th Edition
ISBN: 9781285660516
Author: EHRHARDT
Publisher: Cengage
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Transcribed Image Text:Consider the two (excess return) index model regression results for A and B.
RA
= 1.5% + 1.7RM
R-square = 0.622
Residual standard deviation = 12%
RB
= -2.4 % +1.3RM
R-square=0.468
Residual standard deviation = 9.8%
Required:
a. Which stock has more firm-specific risk?
b. Which stock has greater market risk?
c. For which stock does market movement explain a greater fraction of return variability?
d. If rf were constant at 5.5% and the regression had been run using total rather than excess returns, what would have been the
regression intercept for stock A?
Complete this question by entering your answers in the tabs below.
Required A Required B Required C Required D
If rf were constant at 5.5% and the regression had been run using total rather than excess returns, what would have been
the regression intercept for stock A?
Note: Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.
Intercept
%
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