For the last quarter, the return for Portfolio A was 6.2% with a beta of .9. The market return was 7.6% and the riskfree return was 2.8%. The ex post alpha for Portfolio A is .5 and the error for Portfolio A's excess returns is
A) -1.24%.
B) .96%.
C) - .96%.
D) .72%.

Question

Quizplus · Accepted Answer

The ex post alpha is the difference between the portfolio's return and the expected return, which is calculated as the risk-free rate plus the beta times the market return. In this case, the expected return is 2.8% + 0.9 * (7.6% - 2.8%) = 6.96%. The ex post alpha is therefore 6.2% - 6.96% = -0.76%, which is closest to choice A.

For the Last Quarter, the Return for Portfolio a Was