Consider the regression equation:r_i- r_f= g₀+ g₁b_i+ g₂s²(ei)+ e_itwhere:r_i- r_t= the average difference between the monthly return on stock i and the monthly risk-free rate B_i= the beta of stock is²(ei)= a measure of the nonsystematic variance of the stock i If you estimated this regression equation and the CAPM was valid,you would expect the estimated coefficient,g₁to be A)0 B)1 C)equal to the risk-free rate of return. D)equal to the average difference between the monthly return on the market portfolio and the monthly risk-free rate. E)equal to the average monthly return on the market portfolio.

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The CAPM states that the expected return on a stock is equal to the risk-free rate plus a risk premium that is proportional to the stock's beta. In the regression equation given, the coefficient g1 represents the risk premium per unit of beta. If the CAPM is valid, then we would expect g1 to be equal to the average difference between the monthly return on the market portfolio and the monthly risk-free rate.

Consider the Regression Equation:ri- Rf= G0+ G1bi+ G2s2(ei)+ Eit where:ri-

Consider the Regression Equation:r_i- R_f= G₀+ G₁b_i+ G₂s²(ei)+ E_itwhere:r_i-