The excess return form of the single-index market model is A) R_it = $\alpha$ + b(R_mt - R_it) + e_it. B) RFR_t = $\alpha$ + b(R_mt -RFR_t) + e_it. C) R_it -RFR_t = $\alpha$ + b(R_mt) + e_it. D) R_it = $\alpha$ + b(R_mt - RFR_t) + e_it. E) R_it - RFR_t = $\alpha$ + b(R_mt - RFR_t) + e_it.

Question

Quizplus · Accepted Answer

The correct choice represents the excess return form of the single-index model, which is the return of an asset over the risk-free rate, equal to alpha plus beta times the excess return of the market over the risk-free rate, plus an error term.

The Excess Return Form of the Single-Index Market Model Is α\alphaα

The Excess Return Form of the Single-Index Market Model Is $\alpha$