The index model has been estimated for stocks A and B with the following results: R_A = 0.03 + 0.7R_M + e_A.
R_B = 0.01 + 0.9R_M + e_B.
$\sigma$ _M = 0.35; $\sigma$ (e_A) = 0.20; $\sigma$ (e_B) = 0.10.
The covariance between the returns on stocks A and B is

Question

The index model has been estimated for stocks A and B with the following results: R_A = 0.03 + 0.7R_M + e_A.
R_B = 0.01 + 0.9R_M + e_B.

\sigma

_M = 0.35;

\sigma

(e_A) = 0.20;

\sigma

(e_B) = 0.10.
The covariance between the returns on stocks A and B is

Quizplus · Accepted Answer

The Answer of The index model has been estimated for stocks A and B with the following results: R_A = 0.03 + 0.7R_M + e_A. R_B = 0.01 + 0.9R_M + e_B. $\sigma$_M = 0.35; $\sigma$(e_A) = 0.20; $\sigma$(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)0.0772.

The Index Model Has Been Estimated for Stocks a and B