Consider the Regression Equation: R_i - R_f = G₀

question 24

Multiple Choice

Consider the regression equation: r_i - r_f = g₀ + g₁b₁ + g₂s²(e_i) + e_it
Where:
R_i - r_f = the average difference between the monthly return on stock i and the monthly risk-free rate
B_i = the beta of stock i
S²(e_i) = a measure of the nonsystematic variance of the stock i
If you estimated this regression equation and the CAPM was valid, you would expect the estimated coefficient, g₀, has to be

• A)0.
• B)1.
• C)equal to the risk-free rate of return.
• D)equal to the average difference between the monthly return on the market portfolio and the monthly risk-free rate.

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Definitions:

Adjusted Trial Balance

A financial statement listing all the accounts and their final balances after all adjustments have been made.

Closing Entries

At the end of an accounting cycle, transactions are recorded to shift balances from provisional accounts to lasting accounts.

Post-closing Trial Balance

A summary of all account balances after closing entries are made, used to check the balance of debits and credits.

Adjusted Trial Balance

A list of all accounts and their balances after adjusting entries are made, used in the preparation of financial statements.