Assume you plot the monthly returns for a stock and also for the S&P 500. Using...

Assume you plot the monthly returns for a stock and also for the S&P 500. Using regression analysis, the straight line through these points that is developed by the analysis is referred to as the ______ which has a slope of _____ and an intercept of ______.

A.		characteristic line; alpha; beta
B.		security market line; alpha; gamma
C.		characteristic line; gamma; alpha
D.		security market line; beta; gamma
E.		characteristic line; beta; alpha

Solutions

Expert Solution

Answer:- Option (E):- characteristic line; beta; alpha

Explanation:- Characteristic line is a straight line formed using regression analysis that summarizes a security's predicted excess return from the excess return of the market.

Slope: Beta - Sensitivity of security's returns to market factor (the part due to movements in the overall market)

Intercept: Alpha - Expected excess return of the individual stock due to firm-specific factors (firm-specific expected component)

jeff jeffy answered 1 year ago

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