The index model for stock B has been estimated with the following result: R_B = 0.01 + 1.1R_M + e_B.
If $\sigma$ _M = 0.20 andR²_B = 0.50, the standard deviation of the return on stock B is

Question

The index model for stock B has been estimated with the following result: R_B = 0.01 + 1.1R_M + e_B.
If

\sigma

_M = 0.20 andR²_B = 0.50, the standard deviation of the return on stock B is

Quizplus · Accepted Answer

The standard deviation of stock B can be calculated using the formula: σB = βB * σM + σeB. Given R²B = 0.50, σeB = √(1 - R²B) * σB. Solving these equations gives σB = 0.3111.

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