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Firm-specific risk & systematic (market) risk

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Two regression lines are presented (attached) for stocks A & B.

a) Which stock has higher firm-specific risk? Explain.
b) Which stock has greater systematic (market) risk? Explain.

See the attached file.

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Solution Summary

Using regression of excess return on stock on market premium, the stock with higher firm-specific risk and greater systematic (market) risk are identified.

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See the attached file.
a) Stock A has a higher firm-specific risk.
The goodness of fit of regression line is better for Stock B than for Stock A.
The better the fit the more is the ...

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