The security characteristic line (SCL) associated with the single-index model is a plot of
A)the security's returns on the vertical axis and the market index's returns on the horizontal axis.
B)the market index's returns on the vertical axis and the security's returns on the horizontal axis.
C)the security's excess returns on the vertical axis and the market index's excess returns on the horizontal axis.
D)the market index's excess returns on the vertical axis and the security's excess returns on the horizontal axis.

Question

Quizplus · Accepted Answer

The Security Characteristic Line (SCL) in the context of the single-index model plots the security's excess returns (returns over the risk-free rate) on the vertical axis against the market index's excess returns on the horizontal axis. This helps in assessing the security's performance relative to the market's overall performance.

The Security Characteristic Line (SCL) Associated with the Single-Index Model