Final answer:
Regression analysis on stock returns against the market risk premium is used to estimate the market beta of a levered firm; the correct answer is b) Market.
Step-by-step explanation:
Regression analysis on stock returns against the risk premium on the market can be used to estimate the market beta of a levered firm. The correct answer to the student's question is b) Market. Market beta represents the sensitivity of a firm's stock return to the movement of the whole market's returns; it is a measure of systemic risk assuming a levered firm (one that has debt in its capital structure). An asset beta would pertain to an unlevered firm (one without debt), while alpha refers to the stock's expected return independent of the market's movements. The term gamma is not typically used in the context of stock return regressions.