Use the Equation for the Question(s)below

question 17

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 b_i in the regression:

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

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Definitions:

PHStat

A software tool that enhances Excel with statistical functions and procedures for analysis.

Standard Deviation

A measure of the amount of variation or dispersion in a set of values, indicating how spread out the values are from the mean.

Index Fund

A fund created to adhere to specific predefined criteria, enabling it to mirror the performance of a chosen collection of investments.

PHStat

A software package that enhances Microsoft Excel with statistical analysis capabilities.