The line plotted to fit observations of a stock's returns versus the market's returns determines the:
A)Security market line
B)Beta of the stock
C)Market risk premium
D)Capital asset pricing model

Question

Quizplus · Accepted Answer

The line plotted to fit observations of a stock's returns versus the market's returns is the regression line, which helps determine the beta of the stock. Beta measures the stock's volatility relative to the market and is calculated using the slope of the regression line. The other choices are not directly related to the regression line. The security market line and the capital asset pricing model use beta as an input, but they are not determined by the regression line. The market risk premium is a component of the capital asset pricing model, but again, it is not determined by the regression line itself.

The Line Plotted to Fit Observations of a Stock's Returns