Use the Equation for the Question(s)below

question 73

Multiple Choice

Use the equation for the question(s) below.Consider the following linear regression model:
(Ri - rf) = ai + bi(RMkt - rf) + ei
-The bi in the regression:

• A)measures the sensitivity of the security to market risk.
• B)measures the historical performance of the security relative to the expected return predicted by the SML.
• C)measures the deviation from the best-fitting line and is zero on average.
• D)measures the diversifiable risk in returns.

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Definitions:

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