An analyst is trying to get some insight into the relationship between the return on stock LMD (RLMD,t) and the return on the S&P 500 index (RS&P,t). Using historical data, the analyst estimates the following:
 

Annual mean return for LMD:	11%
Annual mean return for S&P 500 index:	7%
Annual volatility for S&P 500 index:	18%
Covariance between the returns of LMD and S&P 500 index:	6%

 
Assuming the analyst uses the same data to estimate the regression model given by:
 
RLMD,t = α + βR S&P,t  +  εt
Using the ordinary least squares technique, which of the following models will the analyst obtain?
 
a.   RLMD,t  = -0.02 + 0.54RS&P,t   + εt
b.    RLMD,t  = -0.02 + 1.85RS&P,t  + εt
c. RLMD,t   = 0.04 + 0.54RS&P,t + εt 
d.    RLMD,t  = 0.04 + 1.85RS&P,t  + εt

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