If the single-index model is estimated to analyse the risk of two shares A and B, which of the following statement is correct? [Assume that the beta is positive for both A and B.]
a. Suppose that the market index risk and the firm specific factors are not correlated, and the firm specific factors of A and B are uncorrelated. If the beta of A and B are both over-estimated, then the covariance of the pair A and B is always over-estimated if the market-index risk is under-estimated.
b. Suppose that the market index risk and the firm specific factors are not correlated, and the firm specific factors of A and B are uncorrelated. If the beta of A and B are correctly estimated, the covariance of the pair A and B is always over-estimated if the market-index risk is over-estimated.
c. If the beta of A and B are correctly estimated, the covariance of the pair A and B is always correctly estimated.
d. If the beta of A is correctly estimated, the estimated systematic risk of A is always over-estimated if the market-index risk is over-estimated.
e. If the beta of A is correctly estimated, the estimated total risk of A is always under-estimated if the beta of B is under-estimated