The standard deviation of the market index is 27 the, Financial Management

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The standard deviation of the market index is 27 the

The index model has been estimated for stocks A and B with the following results:

RA= 0.03 + 0.85RM+ eA RB= 0.01 + 1.55RM+ eB

The standard deviation of the market index is 27%; the residual standard deviation of the error terms for stock A is 22%; the residual standard deviation of the error terms for stock B is 30%.

What is the covariance between the returns on stocks A and B?

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