The characteristic line of modern investment analysis involves running the following regression: r1 = B1 + B2r

Question:

The characteristic line of modern investment analysis involves running the following regression:
r1 = B1 + B2r mt + ut
where r = the rate of return on a stock or security
rm = the rate of return on the market represented by a broad market index such as S&P 500, and
t = time
In investment analysis, B2 is known as the of the security and is used as a measure of market risk, that is, how developments in the market affect the fortunes of a given company.
Based on 240 monthly rates of return for the period 1956 to 1976, Fogler and Ganapathy obtained the following results for IBM stock. The market index used by the authors is the market index developed at the University of Chicago:
rt = 0.7264 + 1.0598rmt
se = (0.3001) (0.0728) r2 = 0.4710
a. Interpret the estimated intercept and slope.
b. How would you interpret r2?
c. A security whose is greater than 1 is called a volatile or aggressive security. Set up the appropriate null and alternative hypotheses and test them using the t test. Use a = 5%.
Beta Coefficient
Beta coefficient is a measure of sensitivity of a company's stock price to movement in the broad market index. It is an indicator of a stock's systematic risk which is the undiversifiable risk inherent in the whole financial system. Beta coefficient... Portfolio
A portfolio is a grouping of financial assets such as stocks, bonds, commodities, currencies and cash equivalents, as well as their fund counterparts, including mutual, exchange-traded and closed funds. A portfolio can also consist of non-publicly...