A security has an expected rate of return of 0.13 and a beta of 2.1. The market expected rate of return is 0.09, and the risk-free rate is 0.045. The alpha of the stock is
A) −0.95%.
B) −1.7%.
C) 8.3%.
D) 5.5%.

Question

Quizplus · Accepted Answer

Alpha = Expected Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]. Substituting the given values: 0.13 - [0.045 + 2.1 * (0.09 - 0.045)] = -0.0095 or -0.95%.

A Security Has an Expected Rate of Return of 0