Explain the characteristic line in excess return form for the Jensen alpha measure.
The characteristic line is the regression fitting total returns for a stock against total
returns for the market, and is sometimes calculated using excess returns.
A number of prominent observers expect the equity risk premium in the future to be:
Considerably lower than that of the pastConsiderably higher than that of the pastVery
similar to the historical averageNo change is expected from recent years
It is necessary to determine a point estimate of the intrinsic value of a stock when using
relative valuation techniques.
The major difference between the correlation coefficient and the covariance is that:
the correlation coefficient can be positive, negative or zero while the covariance is
always positivethe correlation coefficient measures relationship between securities and
the covariance measures relationships between a security and the marketthe correlation
coefficient is a relative measure showing association between security returns and the
covariance is an absolute measure showing association between security returnsthe
correlation coefficient is a geometric measure and the covariance is a statistical measure