The index model has been estimated for stock A with the following results: R_A = 0.01 + 0.8R_M + e_A.
$\sigma$ _M = 0.20; $\sigma$ (e_A) = 0.10.
The standard deviation of the return for stock A is

Question

The index model has been estimated for stock A with the following results: R_A = 0.01 + 0.8R_M + e_A.

\sigma

_M = 0.20;

\sigma

(e_A) = 0.10.
The standard deviation of the return for stock A is

Quizplus · Accepted Answer

The formula for the standard deviation of returns for the index model is √(F1F1F1S1F1F1F10 + F1F1F1S1F1F1F10(e_A)^2). Plugging in the given values, we get √(0.20 + 0.64) = 0.1887. Therefore, the standard deviation of the return for stock A is 0.1887.

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