Use the equation for the question(s)below.Consider the following linear regression model:
(Ri - rf)= ai + bi(RMkt - rf)+ ei
-The ai 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.

Question

Quizplus · Accepted Answer

The ai in the regression represents the intercept term, which measures the historical performance of the security relative to the expected return predicted by the Security Market Line (SML).

Use the Equation for the Question(s)below