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.

---

Definitions:

Bleach

A chemical compound used to whiten or remove color through oxidation or reduction, often used for disinfection and stain removal.

Seawater

Water from the sea, which is saline in nature due to the presence of dissolved salts, minerals, and other substances.

Muscle Contraction

The process where muscle fibers shorten or tense, producing movement or force, often in response to a nerve impulse.

Sodium Ions

Positively charged ions of sodium, vital for cellular processes, including generating electrical signals in neurons.