The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.8R_M + e_A.
R_B = 0.02 + 1.1R_M + e_B.
Σ_M = 0.30; σ(e_A) = 0.20; σ(e_B) = 0.10.
The covariance between the returns on stocks A and B is

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The Answer of The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.8R_M + e_A. R_B = 0.02 + 1.1R_M + e_B. Σ_M = 0.30; σ(e_A) = 0.20; σ(e_B) = 0.10. The covariance between the returns on stocks A and B is A) 0.0384. B) 0.0406. C) 0.1920. D) 0.0050. E) 0.0792.

The Index Model Has Been Estimated for Stocks a and B