RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the standard deviation of each stock? (Hint: βi = (ρiM σi) / σM.) What is the systematic risk of each stock?

RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X. What is the standard deviation of each stock? (Hint: βi = (ρiM σi) / σM.) What is the systematic risk of each stock?

Glencoe Algebra 1, Student Edition, 9780079039897, 0079039898, 2018

18th Edition

ISBN:9780079039897

Author:Carter

Publisher:Carter

Chapter4: Equations Of Linear Functions

Section4.5: Correlation And Causation

Problem 2AGP

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Question

Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results:

R_HD =-0.03+2.10R_M+e_HD

R-squared =0.7

R_ML =0.06+1.60R_M+e_ML

R-squared =0.6

σ_M =0.15

where M is S&P/TSX Comp Index and R_X is the excess return of stock X.

What is the standard deviation of each stock? (Hint: β_i = (ρ_iM σ_i) / σ_M.)
What is the systematic risk of each stock?

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