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 explanatory variable in this model is _________. A) R B) R - R_f C) R_M D) R_M - R_f

Question

Quizplus · Accepted Answer

The explanatory variable in this model is the difference between the expected return on the market and the risk-free market return, which is given by R_M - R_f, therefore the correct choice is (D).

The Capital Asset Pricing Model Is Given by R -