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Answer: 0.0965
## Explanation Using the stated regression parameters, the regression equation is: **Expected Monthly Return = β₀ + β(Interest rates)** Where: - β₀ = 0.064 (intercept) - β = 0.65 (slope coefficient) - Interest rate = 5% = 0.05 So, when the interest rate is 5%, the corresponding expected return is: **Expected Monthly Return = 0.064 + 0.05 × 0.65** **= 0.064 + 0.0325** **= 0.0965 = 9.65%** Therefore, the correct answer is **A. 0.0965**.
Author: Tanishq Prabhu
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A financial analyst develops a Capital Pricing Model that regresses the expected monthly return of a company on the prevailing interest rates. The coefficients are β₀ = 0.064 and β = 0.65 where β₀ is the intercept. What is the value of the monthly expected return for the company if the interest rate at a particular month is 5%?
A
0.0965
B
0.0856
C
0.0778
D
0.0567
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