The Index Model Has Been Estimated for Stocks a and B

question 85

Multiple Choice

The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.6R_M + e_A.
R_B = 0.02 + 1.2R_M + e_B.
Σ_M = 0.30; σ(e_A) = 0.20; σ(e_B) = 0.10.
The standard deviation for stock A is

• A) 0.0656.
• B) 0.0676.
• C) 0.3499.
• D) 0.2600.

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Definitions:

Operating Expenses

Expenses incurred through normal business operations, such as rent, utilities, and salaries, but not including cost of goods sold.

Statement of Stockholders' Equity

A financial document showing changes in the value of a company’s equity over a specific period, including shares issued, dividends paid, and earnings retained.

Retained Earnings

The residual net income available to a business after distributing dividends to its shareholders.

Net Income

Net income is the total profit of a company after all expenses, taxes, and costs have been subtracted from total revenues.