The characteristic line is graphically depicted as:
A)the plot of the relationship between beta and expected return.
B)the plot of the returns of the security against the beta.
C)the plot of the security returns against the market index returns.
D)the plot of the beta against the market index returns.
E)None of the above.

Question

Quizplus · Accepted Answer

The characteristic line is a graphical representation of the relationship between the returns of a security and the returns of the market index, plotted on a graph. The slope of the line represents the security's beta, and the intercept represents the security's risk premium. Therefore, the correct plot for the characteristic line is the plot of the security returns against the market index returns.

The Characteristic Line Is Graphically Depicted As