Using Defined Names Like the Kind Shown in the Accompanying

question 27

Multiple Choice

Using defined names like the kind shown in the accompanying figure makes creating and understanding a(n) ____ easier.

• A)index
• B)log
• C)formula
• D)All of the above

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Definitions:

Security Characteristic Line

A line used in finance to represent the relation between the expected return of a security and the return of the market.

Single-Index Model

A financial model that describes the return of a security or portfolio as a linear function of the return of a single market index, accounting for both the market return and idiosyncratic factors.

Excess Returns

Returns on an investment that exceed the benchmark or risk-free return, indicating the extra value gained by taking on risk.

Index Model

A financial model that describes the return of a stock as a function of the return of a market index, plus residual factors unique to that stock.