Use the equation for the question(s)below.Consider the following linear regression model:
(Ri - rf)= ai + bi(RMkt - rf)+ ei
-The bi in the regression:
A)measures the sensitivity of the security to market risk.
B)measures the historical performance of the security relative to the expected return predicted by the SML.
C)measures the deviation from the best-fitting line and is zero on average.
D)measures the diversifiable risk in returns.

Question

Quizplus · Accepted Answer

The bi in the regression measures the sensitivity of the security to market risk, or its beta coefficient. It reflects how much the security's returns are affected by changes in the overall market returns.

Use the Equation for the Question(s)below