Give the following true population SIM (not estimated SIM): R i - R f =0.1%+1.2( R b
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Question:
Give the following true population SIM (not estimated SIM):
Ri-Rf=0.1%+1.2(Rb-Rf)+ϵi
When estimating this true SIM, what will be the estimated value of alpha (the intercept), when the variance of ϵi is small? Theriskless rate
is 0% and the market risk premium is 0.5%. Your answer should be in percentage points.
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