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:

Post-Closing Trial Balance

A summary of all account balances in a company's general ledger after closing entries are made, serving to verify the equality of debits and credits.

Financial Statements

Documents that provide an overview of a company's financial condition in both short and long term, including the balance sheet, income statement, and cash flow statement.

Closing Entries

Journal entries made at the end of an accounting period to transfer the balances of temporary accounts to permanent ones, thereby preparing the accounts for the next period.

Depreciation Expense

is the charged amount for a particular period for the reduction in value of tangible assets due to usage and passage of time.