The best fit line of a pairwise plot of the returns of the security against the market index returns is called the:
A) Security Market Line.
B) Capital Market Line.
C) characteristic line.
D) risk line.
E) None of these.

Question

Quizplus · Accepted Answer

The best fit line of a pairwise plot of the returns of the security against the market index returns is called the characteristic line. This line represents the relationship between the returns of the security and the returns of the market, and is used to estimate the security's beta value. The Security Market Line and Capital Market Line are different concepts that relate to the pricing of assets and the market portfolio, while the terms "risk line" and "none of these" are not relevant to this concept.

The Best Fit Line of a Pairwise Plot of the Returns