Use the Equation for the Question(s)below

question 88

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 e_i in the regression:

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

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Definitions:

Consolidation Method

An accounting technique used when a company owns more than 50% of another company, requiring the financial statements of both companies to be combined as one.

Equity Securities

Equity securities represent ownership interest held by shareholders in an entity, such as stocks, signaling a claim on its proportionate share in the corporation's assets and profits.

Non-Current Section

A section of the balance sheet that lists long-term liabilities and assets that are not expected to be liquidated or paid off within one year.

Long-Term Investments

Investments in securities, bonds, real estate, or other assets intended to be held for a period exceeding one year for capital gains, dividends, or interest earnings.