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 + 1.2R_M + e_B.
Σ_M = 0.20; σ(e_A) = 0.20; σ(e_B) = 0.10.
The standard deviation for stock A is

Name: 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 + 1.2R M + e B . Σ M = 0.20; σ(e A ) = 0.20; σ(e B ) = 0.10. The standard deviation for stock A is A) 0.0656. B) 0.0676. C) 0.2561. D) 0.2600.
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Question

Quizplus · Accepted Answer

σ_A = [(0.8)²(0.2)² + (0.2)²]^1/2 = 0.2561.

The Index Model Has Been Estimated for Stocks a and B