The index model for stock A has been estimated with the following result:R_A = 0.01 + 0.9R_M + e_A.If σ_M = 0.25 and R²A = 0.25, the standard deviation of return of stock A is A) 0.2025. B) 0.2500. C) 0.4500. D) 0.8100.

Question

Quizplus · Accepted Answer

The standard deviation of stock A can be calculated using the formula: σA = βA * σM / sqrt(R²A). Substituting the given values: σA = 0.9 * 0.25 / sqrt(0.25) = 0.45.

The Index Model for Stock a Has Been Estimated with the Following