Consider the Regression Equation: R_i - R_f = G₀

question 21

Multiple Choice

Consider the regression equation: r_i - r_f = g₀ + g₁b_i + g₂s²(e_i) + e_it
where:
R_i - r_t = 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, g₁, 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:

Service Delivered

The act of providing a service to customers, encompassing everything from the initial offer to the end-user experience.

Profits Realized

The net income a company earns after all expenses, taxes, and costs have been deducted from total revenue, reflecting actual financial gain.

Dependability

The quality of being trustworthy and reliable, especially in delivering services or products.

Consistent Lead Time

The reliability and uniformity in the amount of time required for a product to be delivered or a service to be completed after an order is placed.