Use the Equation for the Question(s)below

question 7

Multiple Choice

Use the equation for the question(s) below.Consider the following regression model:
Rs - rf = as + (RF1 - rf) + (RF2 - rf) + ε_s
-The term is a(n) :

• A)measure of the expected percent change in the excess return of a security for a 1% change in the excess return of the second factor portfolio.
• B)error term that has an expectation of zero and is uncorrelated with either factor.
• C)constant term.
• D)measure of the expected percent change in the excess return of a security for a 1% change in the excess return of the first factor portfolio.

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Definitions:

One-way ANOVA

A statistical method used to compare the means of three or more independent groups on a single variable to see if they are significantly different.

Test Statistic

A number calculated from sample data used to make inferences about a population parameter in hypothesis testing.

Mean Square

The mean square is the average of the squares of a set of numbers, often used in variance and regression analysis.

Degrees of Freedom

The number of values in a statistical calculation that are free to vary without violating any constraints.