The capital asset pricing model is given by R - R_f = α + β(R_M - R_f) + ε, where R_M = expected return on the market, R_f= risk-free market return, and R = expected return on a stock or portfolio of interest. The response variable in this model is ________. A) R B) R - R_f _{_{_R_M _D)_R_M- R_f}}

Question

Quizplus · Accepted Answer

In the given equation, the term R - R_f is already equal to the excess return or the difference between the expected return on a stock or portfolio and the risk-free market return. Therefore, B is the correct answer as it represents the response variable in the model.

The Capital Asset Pricing Model Is Given by R -