Final answer:
The alpha coefficient estimates the range around the expected rate of return where the actual return tends to fall, pertaining to the confidence level. The correct option is (c).
Step-by-step explanation:
The alpha coefficient can best be described as an estimate of the range (plus or minus) around the expected rate of return within which the actual rate of return will tend to fall.
It is related to the confidence level and indicates the probability that the confidence interval does not contain the unknown population parameter (alpha = 0.05 indicates a 5% probability).
The term weighted alpha refers to a measure of risk-adjusted performance of stocks over a period of a year.
A high positive weighted alpha indicates a stock whose price has risen, signaling strong upward trends, whereas a small or negative weighted alpha suggests an unchanged or decreased stock price.
When discussing risk and return, it is important to understand that risk measures the uncertainty of an investment's profitability while the expected rate of return is the average return anticipated over a time period.
A high-risk investment may have a wide range of potential payoffs, including returns which are significantly higher or lower than the expected rate of return.