Question
In: Finance
Fill in the blanks: According to the single-index model: = β * + + e.
Fill in the blanks: According to the single-index model: = β * +
+ e.
Solutions
Expert Solution
Answer: = β * Rm + α + e
According to Single- Index Model, Stock Prices are related to the market index. This relation can be used to estimate the return of stock.
Return of Stock (R) = β * Rm + α + e.
where, Rm = Return on Market Index,
e = error term,
α = alpha coefficient
β = Beta coefficient
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