Suppose that the index model for two Canadian stocks HD and ML is estimated with the following results: RHD =0.02+0.80RM+eHD R-squared =0.6                 RML =-0.03+1.50RM+eML R-squared =0.4 σM =0.20 where M is S&P/TSX Comp

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INV 2-3b

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

RHD =0.02+0.80RM+eHD

R-squared =0.6

                RML =-0.03+1.50RM+eML

R-squared =0.4

σM =0.20

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

b. What is the systematic risk of each stock?

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