Mr.ABC claims that he is good at picking underpriced stocks. Over the years, the average return...

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Mr.ABC claims that he is good at picking underpriced stocks. Over the years, the average return on the portfolio managed by Mr.ABC has been 20% with standard deviation 15%. Over the same period, the average return on the market portfolio has been 15%, with stan- dard deviation 12%. You estimate that the correlation between Mr.ABC's portfolio and the market has been pPM = 0.2. Finally, the risk-free rate has been contant and is 2%. a. Compute the expected returns on Mr.ABC's portfolio that would be consistent with CAPM. b. Compute the CAPM alpha of Mr.ABC's portfolio. Mr.ABC claims that he is good at picking underpriced stocks. Over the years, the average return on the portfolio managed by Mr.ABC has been 20% with standard deviation 15%. Over the same period, the average return on the market portfolio has been 15%, with stan- dard deviation 12%. You estimate that the correlation between Mr.ABC's portfolio and the market has been pPM = 0.2. Finally, the risk-free rate has been contant and is 2%. a. Compute the expected returns on Mr.ABC's portfolio that would be consistent with CAPM. b. Compute the CAPM alpha of Mr.ABC's portfolio.

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