Consider the two (excess return) index-model regression results for stocks a and b. the riskfree rate over the period was 7%, and the market’s average return was 12%. performance is measured using an index model regression on excess returns.

stock a stock b
index model regression estimates 1% + 1.2(rm – rf) 2% + .8(rm – rf)
r-square 0.623 0.46
residual standard deviation, σ(e) 11.1% 19.9%
standard deviation of excess returns 22.4% 26.5%

a. calculate the following statistics for each stock: (round your answer to 4 decimal places. omit the "%" sign in your response.)

i. alpha
ii. information ratio
iii. sharpe measure
iv. treynor measure

b. which stock is the best choice under the following circumstances?

i. this is the only risky asset to be held by the investor.

ii. this stock will be mixed with the rest of the investor’s portfolio, currently composed solely of holdings in the market-index fund.

iii. this is one of many stocks that the investor is analyzing to form an actively managed stock portfolio.

1. list five staple convenience goods that you or your household buys on a regular basis. (you do not need to use complete sentences. 2.5 points) 2. list three impulse convenience goods that you or someone you know has purchased. (you do not need to use complete sentences. 2.5 points) 3. describe a shopping good that you or someone you know purchased. what kind of research did you or that person do before buying the product? (1-5 sentences. 3.0 points) 4. choose an example of a company you could start, and decide which business structure would make the most sense for that type of company (sole proprietorship, partnership, llc, c corporation, s corporation, or nonprofit corporation). explain why this structure would be good for this type of company. give at least 3 reasons. (3-6 sentences. 6.0 points) 5. if you were starting a new business, describe at least three departments to the company that you would need right away. why are these departments so important? (1-5 sentences. 3.0 points) 6. describe a product that you think has saturated its market. what makes you think it has saturated its market? (1-5 sentences. 3.0 points)