The index model for stock A has been estimated with the following result:R_A = 0.01 + 0.94R_M + e_AIf σ_M = 0.30 and R²_A = 0.28, the standard deviation of return of stock A is A) 0.2025. B) 0.2500. C) 0.4500. D) 0.5329.

Question

Quizplus · Accepted Answer

The standard deviation of stock A can be calculated using the formula: σ_A = β_A * σ_M * sqrt(R²_A) + sqrt(1 - R²_A) * σ_eA. Given β_A = 0.94, σ_M = 0.30, and R²_A = 0.28, we find σ_A = 0.5329.

The Index Model for Stock a Has Been Estimated with the Following