The Index Model Has Been Estimated for Stocks a and B

question 7

Multiple Choice

The index model has been estimated for stocks A and B with the following results: R_A = 0.01 + 0.8R_M + e_A.
R_B = 0.02 + 1.2R_M + e_B.
Σ_M = 0.20; σ(e_A) = 0.20; σ(e_B) = 0.10.
The standard deviation for stock A is

• A) 0.0656.
• B) 0.0676.
• C) 0.2561.
• D) 0.2600.

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Definitions:

Monopoly

A market condition where a single company or entity exclusively controls a particular commodity or service, often leading to less competition and higher prices.

Public Regulation

The imposition of rules by the government aimed at influencing or controlling certain activities within the economy or society for the general welfare.

Natural Monopolists

Natural monopolists are entities that can provide a good or service at a lower cost than any potential competitor due to economies of scale, making a single provider more efficient than multiple competing ones.

Antitrust Suit

A legal action taken against companies to stop practices that restrain trade, maintain monopolies, or otherwise violate antitrust laws.