Analysts May Use Regression Analysis to Estimate the Index Model

question 59

Multiple Choice

Analysts may use regression analysis to estimate the index model for a stock. When doing so, the intercept of the regression line is an estimate of

• A) the α of the asset.
• B) the β of the asset.
• C) the σ of the asset.
• D) the δ of the asset.

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Definitions:

Required Return

The minimum expected yield by investors to compensate for the risk of an investment.

Security Market Line

A representation in financial markets that depicts the relationship between the risk of an asset and its expected return.

Expected Inflation Rate

The anticipated rate at which the general level of prices for goods and services will rise over a period of time.

Risk Averse

The preference to avoid uncertainty, referring to the behavior of investors who prefer lower returns with known risks over higher returns with unknown risks.