Asked by Peter Manyang Bichok on Jul 11, 2024
Verified
Using the index model, the alpha of a stock is 3%, the beta is 1.1, and the market return is 10%. What is the residual given an actual return of 15%?
A) .0%
B) 1%
C) 2%
D) 3%
Index Model
A statistical model to represent the returns of a security or a portfolio as a function of the returns of the market as a whole, along with random error.
Market Return
The overall return generated by the stock market or a specific segment of the market, over a given period.
Residual
The amount remaining after the major part or parts have been accounted for; in finance, often refers to the remainder left after specific calculations, such as dividends from a corporation after major expenses are paid.
- Comprehend and analyze output from regression analyses pertinent to financial modeling.
Verified Answer
TN
Learning Objectives
- Comprehend and analyze output from regression analyses pertinent to financial modeling.