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%.
E)none of the above.

Question

Quizplus · Accepted Answer

The alpha is calculated as the actual return minus the expected return based on the CAPM. Expected return = 0.045 + 2.1 * (0.09 - 0.045) = 0.1395. Alpha = 0.13 - 0.1395 = -0.0095 or -0.95%.

A Security Has an Expected Rate of Return of 0