Question: The following table contains information on the expected return, beta, market value of equity, and book value of equity for 9 stocks: NFLX TSLA DIS

The following table contains information on the expected return, beta, market value of equity, and book value of equity for 9 stocks:

NFLX TSLA DIS PFE PSX XEL TGT SBUX SQ
E[r] 9.8% 5.4% 12.6% 7.0% 16.3% 19.1% 15.2% 11.2% 14.1%
Beta 2.0 0.4 0.7 0.3 1.2 0.2 0.6 0.9 2.2
Market Value of Equity 132.4 73.8 255.3 206.4 53.0 31.6 79.3 99.8 28.3
Book Value of Equity 5.2 14.9 88.8 43.4 24.9 12.2 15.3 5.8 1.1

Suppose the market risk premium is 10.0% and the risk-free rate is 1.0%. What is the alpha on an equally-weighted portfolio of the three stocks with the largest book-to-market ratios?

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