RHD =-0.03+2.10RM+eHD R-squared =0.7 RML =0.06+1.60RM+eML R-squared =0.6 σM =0.15 where M is S&P/TSX Comp Index and RX is the excess return of stock X.   What is the standard deviation of each stock? (Hint: βi = (ρiM σi) / σM.)  What is the systematic risk of each stock?

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

RHD =-0.03+2.10RM+eHD

R-squared =0.7

RML =0.06+1.60RM+eML

R-squared =0.6

σM =0.15

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

  1. What is the standard deviation of each stock? (Hint: βi = (ρiM σi) / σM.) 
  2. What is the systematic risk of each stock?
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