The slope of the fitted line on a graph of observations of a stock return and the market return is called
Blank
______.

Question

The slope of the fitted line on a graph of observations of a stock return and the market return is called 
Blank
______.

BlackTom AI · Accepted Answer

Restating the question and its options helps set the stage for evaluation:
- Question: The slope of the fitted line on a graph of observations of a stock return and the market return is called ______.
- Answer options: beta, alpha, market risk premium, risk-free rate.

Option 1: beta
- This option identifies the slope of the regression line of a stock’s returns on the market’s returns, which is the classic definition of beta in asset pricing and CAPM contexts. Beta measures the stock’s sensitivity to market movements and is interpreted as the systematic risk relative to the market.

Option 2: alpha
- Alpha typically represents the intercept term in a regression of asset returns on market returns, capturing abnormal performance or the portion of return not explained by market movements. It is not the slope, so this option describes a different concept.

Option 3: market risk premium
- The market risk premium is the extra return expected from the market portfolio over the risk-free rate. It is a return term at the aggregate level, not a slope from the regression of a single stock’s returns on the market returns, so this option misidentifies the geometric interpretation.

Option 4: risk-free rate
- The risk-free rate is the return on a theoretically riskless asset, often used as a baseline in CAPM. It is a level of return, not a slope from a regression of stock against market, thus not matching the described quantity.

Putting it together, the term that matches the description of the regression slope between a stock’s returns and the market’s returns is the slope parameter that quantifies sensitivity to market moves.

The slope of the fitted line on a graph of observations of a stock return and the market return is called Blank ______.

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