In the CAPM the characteristic line for stock X is:
A)another name for the SML.
B)the regression line relating X's return with the market return from which X's beta is developed.
C)a line between any two data points on a historical plot of X's return against market return.
D)a line of reasoning that characterizes portfolio theory.

Question

Quizplus · Accepted Answer

The characteristic line for stock X is the regression line that relates X's return with the market return, from which X's beta is developed. It is used to determine the expected return of the stock given the level of systematic risk, or beta, it possesses in relation to the market.

In the CAPM the Characteristic Line for Stock X Is