Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where is the return on fund ABC, is the risk-free rate and is the return on the market index):

-The estimated alpha ( ) and beta ( ) of a rival fund, Fund DEF, are 2.3 and 3.1, respectively. If the expected market risk premium is 12%, what would we expect the excess return of Fund DEF to be?
A) 39.5%
B) 30.7%
C) 5.4%
D) 64.8%

Question

Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where   is the return on fund ABC,   is the risk-free rate and   is the return on the market index):

-The estimated alpha (  ) and beta (  ) of a rival fund, Fund DEF, are 2.3 and 3.1, respectively. If the expected market risk premium is 12%, what would we expect the excess return of Fund DEF to be?
A) 39.5% 
B) 30.7% 
C) 5.4% 
D) 64.8%

Quizplus · Accepted Answer

The Answer of Suppose you have 5-year annual data on the excess returns on a fund manager’s portfolio (“fund ABC”) and the excess returns on a market index (where   is the return on fund ABC,   is the risk-free rate and   is the return on the market index):

-The estimated alpha (  ) and beta (  ) of a rival fund, Fund DEF, are 2.3 and 3.1, respectively. If the expected market risk premium is 12%, what would we expect the excess return of Fund DEF to be?
A) 39.5% 
B) 30.7% 
C) 5.4% 
D) 64.8%

Suppose You Have 5-Year Annual Data on the Excess Returns