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.
$\sigma$ _M = 0.20; $\sigma$ (e_A) = 0.20; $\sigma$ (e_B) = 0.10.
The standard deviation for stock A is

Question

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.

\sigma

_M = 0.20;

\sigma

(e_A) = 0.20;

\sigma

(e_B) = 0.10.
The standard deviation for stock A is

Quizplus · Accepted Answer

The standard deviation of stock A is calculated using the formula: σA = sqrt((βA^2 * σM^2) + σ(eA)^2). Substituting the given values: σA = sqrt((0.8^2 * 0.20^2) + 0.20^2) = 0.2561.

The Index Model Has Been Estimated for Stocks a and B