Use the Equation for the Question(s)below

question 104

Multiple Choice

Use the equation for the question(s) below.
Consider the following linear regression model:
(R_i - r_f) = a_i + b_i(R_Mkt - r_f) + e_i
-The a_i in the regression:

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

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Definitions:

Histogram

A visual chart that categorizes a collection of data points into specified intervals, indicating how often data appears within those intervals.

Standard Deviation

A procedure for calculating the extent of dispersion or variability among a group of data values.

Range

In statistics, the difference between the largest and smallest values in a dataset, describing its spread.

IQR

Interquartile Range, a measure of statistical dispersion being the difference between the upper and lower quartiles.