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You are given the following estimates of Stock A and Stock B Stock A Stock B Actual E[R] VAR[R;] 0.0518

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You are given the following estimates of Stock A and Stock BStock A Stock B  where the actual E[R] is the expected return estimated as the expected price in one year divided by the current price (neither stock pays dividends). The expected return on the market is 8% and its variance is 0.0497. The risk-free rate is 5%. 


Consider an equal-weighted portfolio P invested in A and B. According to the CAPM, what is the alpha of P?
Transcribed Image Text:

Stock A Stock B "Actual" E[R¡] VAR[R;] 0.0518 0.0392 9% 15% COV(Ri, RMkt) 0.0254 0.0515

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To calculate the alpha of an equal weighted portfolio P invested in Stock A and Stock B we need to c View the full answer


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Related Book For  answer-question
Income Tax Fundamentals 2013

Income Tax Fundamentals 2013

ISBN: 9781285586618

31st Edition

Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill

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Posted Date: September 24, 2023 03:54:12
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