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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