The intercept in the regression equations calculated by beta books is equal to
A)β in the CAPM
B)β + rf(1 + β)
C)β + rf(1 - β)
D)1 - β
E)none of the above

Question

Quizplus · Accepted Answer

According to the Capital Asset Pricing Model (CAPM), the intercept of the regression equation (also known as the alpha) is equal to the risk-free rate (rf) plus the product of the market risk premium (rm – rf) and the beta (β) coefficient. This can be expressed as α = rf + β(rm – rf). In this equation, rf(1 – β) is equal to the intercept as presented in choice C.

The Intercept in the Regression Equations Calculated by Beta Books