Question

(a) _______ % of the variance is explained by this regression.

(b) The firm-specific risk is ______.

(c) The beta of this stock is ______. Hence, the stock is ______% riskier than the market.

(d) The characteristic line for this stock is E(Rstock) = ___ + ___ E(Rmarket)

(e) The alpha(intercept) has a t-Stat = ______. This is ______ than 2. Therefore, we can treat this alpha as if it’s equal/not equal to (circle one) zero and conclude the CAPM is valid/invalid (circle one) for this stock.

Multiple R | R-Square | Adjusted R-S | Standard Error | Observations p-Value Intercept Market Coefficients | Standard Error 15.14 0.97 0.80 182 0.26 136

Answer 1

G A D E F 1 a) 2 R-square gives the % of variance explained by this regression 3 4 12% of variance explained by this regression 5 b) 6 firm-specific risk (Standard error)^2 0.14784) 7 c) 8 beta coefficient of market 1.32 9 the stock is 32% riskier than the market 10 d) 11 characteristic line 12 E(Rstock) intercept coefficient + beta estimate 13 E(Rstock) 4.05 1.32 14 e) 15 t-stat 0.26 16 this is < 2 17 therefore, we can treat this alpha as if it's equal to zero and conclude the CAPM is valid for this stock 18 20