Consider the following information about the share price of Orbison Sunglasses and the S&P 500. Assume the S&P 500 represents the market portfolio.

Year	Orbison Sunglasses share price ($)	S&P 500
2015	10	400
2016	15	440
2017	18	528
2018	16. 2	528

What are the average return and standard deviations of returns for Orbison Sunglasses and the market portfolio over the period 2015-2018 (hint: calculate the returns first)?

Assume the current risk-free rate is 5% and Orbison Sunglasses has a beta of 1.5 with the market portfolio. Assume a market risk premium of 4%. What is the expected share price for Orbison Sunglasses in 2019?

Suppose 2015 is an unexpectedly sunny year, boosting the share price for Orbison Sunglasses to 24.3. What is Orbison Sunglasses’ alpha (actual return in excess of expected return) in 2019?

Should you use your estimate for alpha that you obtained in question (c) to calculate expectations for future returns? Why (not)?

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Caululation f Auverage retun Orbisen Sunglasss euturn Ye... View the full answer