Consider the regression equation: r_it − r_ft = a_i + b_i(r_mt − r_ft) + e_it Where: R_it = return on stock i in month t R_ft = the monthly risk-free rate of return in month t R_mt = the return on the market portfolio proxy in month t This regression equation is used to estimate A) the security characteristic line. B) benchmark error. C) the capital market line. D) All of the options are correct. E) None of the options are correct.

Question

Quizplus · Accepted Answer

This regression equation is used to estimate the security characteristic line (SCL), which describes the relationship between the excess return on a security over the risk-free rate and the excess return on the market portfolio over the risk-free rate.

Consider the Regression Equation: Rit − Rft = Ai

Consider the Regression Equation: R_it − R_ft = A_i