If a two-factor model used the growth rate of the gross domestic product and the level of oil prices as factors, what would the intercept term of the model represent?
A) the rate of growth of returns if the GDP and oil prices increased
B) the rate of growth of returns if the GDP and oil prices decreased
C) the expected return if the GDP and oil prices are zero
D) the rate of growth of expected growth if the GDP and oil prices remained constant

Question

Quizplus · Accepted Answer

The intercept term in a two-factor model represents the expected return of an asset when both factors are at their average levels (i.e., at zero). In this case, the intercept term would represent the expected return if the GDP growth rate and oil prices were both at zero.

If a Two-Factor Model Used the Growth Rate of the Gross