The risk-free rate is 3.4 percent and the expected return on the market is 10.8 percent.Stock A has a beta of 1.18.For a given year,stock A returned 13.6 percent while the market returned 11.8 percent.The systematic portion of the unexpected return was ________ percent and the unsystematic portion was ________ percent.
A) 1.045; 0.207
B) 1.145; 0.126
C) 1.180; 0.288
D) 1.344; 1.443
E) 1.500; 1.449

Question

Quizplus · Accepted Answer

E(R) = 3.4 + 1.2(10.8 - 3.4) = 12.132 percent R - E(R) = 13.6 - 12.132 = 1.468 percent R_M - E(R_M) = 11.8 - 10.8 = 1.0 percent [R_M - E(R_M)] × β = 1.18 × 1.0 = 1.18 percent [R - E(R)] - [R_M- E (R_M)] × β = 1.468 - 1.18 = 0.288 percent The systematic portion of the unexpected return is 1.18 percent and the unsystematic portion is 0.288 percent.

The Risk-Free Rate Is 3