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Consider the two (excess return) index-model regression resultsfor stocks A and B. The risk-free rate over theperiod was 6%, and the market’s average return was 15%. Performanceis measured using an index model regression on excess returns.Stock AStock BIndex model regression estimates1% + 1.2(rM ? rf)2% + 0.8(rM ? rf)R-square0.5940.445Residual standard deviation, ?(e)10.6%19.4%Standard deviation of excess returns21.9%25.5%a. Calculate the following statistics for eachstock: (Round your answers to 4 decimalplaces.)b. Which stock is the best choice under thefollowing circumstances?
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