How would you incorporate abnormal returns (alphas) into your analysis? Use calculations to determine what the best investment is based on alphas.Hint: At Darden, we use the 1 month treasury rate to proxy for the risk free rate (Exhibit 6). To obtainthe market risk premium, we use Ibbotson's arithmetic large-company stock minus US Treasury bills (30day) (Exhibit 5). Table 1 shows the anticipated (estimated returns) of each stock. Please use the valueline Betas.

Exhibit 5 Darden Capital Management: The Cavalier Fund Summary Statistics of Annual Returns for Various Classes of Securities (1926 to 2016) Series Geometric mean' Arithmetic mean? Std. deviation Inflation (consumer price index) 2.9% 3.0% 4.1% US Treasury bills (30 day) 3.4% 3.4% 3.1% Long-term government bonds 5.5% 6.0% 9.9% Long-term high-grade corporate bonds 6.0% 6.3% 8.4% Large company stocks 10.1% 12.0% 19.9% (S&P 500 index) Data source: Ibbotson Associates, "Stocks, Bonds, Bills, and Inflation, 2017 Yearbook." " The geometric mean is the compound rate of return over the 91-year sample period defined as Reismarks= (V2016/V1926)7-1, where I', is the value of the series in the respective year. "The arithmetic mean is the simple average of the 91 annual returns. Source: Ibborson Associates, "Stocks, Bonds, Bills, and Inflation," 2017 Yearbook.Exhibit 6 Darden Capital Management: The Cavalier Fund US Capital Market Bond Yields Security Dec 30, Jan 31, Feb 28, Mar 31, Apr 6, 2016 2017 2017 2017 2017 Treasury constant maturities 1-month 0.44% 0.50% 0.40% 0.74% 0.78% 1-year 0.85 0.84 0.88 1.03 1.05 10-year 2.45 2.45 2.36 2.40 2.34 Corporate industrial bonds (Moody's seasoned) Aaa 4.06