Investments - Bodie, Kane and Marcus The results of the regression for an action

Question

Investments - Bodie, Kane and Marcus

The results of the regression for an action following the CAPM model in the following version are the following: Ri-rfBi (rm - rf) Regression statistics Multiple correlation coefficient RA2 determination coefficient Adjusted R 2 Typical error Observations 0.5159 0.4000 0.2535 0.0647 60.0000 Interception Variable X 1 Coefficients t Statistic 0.0187 2.1487 0.8799 4.5867 Indicate which parameters meet the CAPM and which violate them and why Is the action over or undervalued and why?

Explanation / Answer

Ri = Rf + B*(Rm-Rf)

This (Rm-Rf) is the Risk Premium

So, Ri = Rf + B*RP

Comparing this to the regression output,

Rf = 0.0187 = 1.87%

B = 0.8799

Rp is the independent variable where Ri is the dependent variable

Rp has a very high t value and it can be seen as a violation based on the hypothesis defined

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