Consider the Regression Equation: R_it − R_ft = A_i

question 42

Multiple Choice

Consider the regression equation: r_it − r_ft = a_i + b_i(r_mt − r_ft) + e_it
Where:
R_it = return on stock i in month t
R_ft = the monthly risk-free rate of return in month t
R_mt = the return on the market portfolio proxy in month t
This regression equation is used to estimate

• A) the security characteristic line.
• B) benchmark error.
• C) the capital market line.
• D) All of the options are correct.
• E) None of the options are correct.

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Definitions:

Probability

The measure of the likelihood that an event will occur, expressed as a number between 0 and 1, where 0 indicates impossibility and 1 indicates certainty.

Returns

The profit or loss derived from an investment, often expressed as a percentage of the investment amount.

Dividend Yield

A financial ratio that indicates how much a company pays out in dividends each year relative to its stock price.

Dividend Income

Income received from owning shares in a corporation, usually in the form of cash payments made to investors out of the company's profits.