Consider the two (excess return) index-model regression results for stocks A and B. The risk-free rate over the peri was 8%, and the market's average return was 14%. Performance is measured using an index model regression on excess returns. Index model regression estimates R-square Residual standard deviation, a(e) Standard deviation of excess returns L ii. ii. iv. Stock A 10+ 1.2 (FM - *) a. Calculate the following statistics for each stock: (Round your answers to 4 decimal places.) 0.665 11.88 23.19 Alpha Information ratio Sharpe ratio Treynor measure Answer is complete but not entirely correct. Stock A Stock B 1.0000 % 2.0000 % 0.0847 0.0971 0.3550 0.2437 0.0683x 0.0850 Stock B 20+ 0.8(FM-rg) 0.481 20.6% 27.9%

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Risk and return

Before understanding the concept of Risk and Return in Financial Management, understanding the two-concept Risk and return individually is necessary. 

Capital Asset Pricing Model

Capital asset pricing model, also known as CAPM, shows the relationship between the expected return of the investment and the market at risk. This concept is basically used particularly in the case of stocks or shares. It is also used across finance for pricing assets that have higher risk identity and for evaluating the expected returns for the assets given the risk of those assets and also the cost of capital.