1. Security A has an expected rate of return of 15.50% and a beta of 1.75.The risk–free rate is 2.25% and the market risk premium is 6%.What is the alpha of security A? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
2. You are calculating the risk of ABC stock in relation to the market index and you find ABC’s beta is 2.75, the market index’s standard deviation is 22%, and the standard deviation of ABC’s residual error terms is 40%.What percentage of ABC’s total variance is due to systematic risk? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
3. You have a $100,000 portfolio consisting of Apple, Berkshire Hathaway, and Amazon.com. You put $33,000 in Apple, $23,000 in Berkshire Hathaway, and the rest in Amazon.com. Apple, Berkshire, and Amazon have betas of 1.06, 0.29, and 1.27, respectively. What is your portfolio’s beta? Enter your answer rounded to two decimal places. For example, if your answer is 12.345 then enter as 12.35 in the answer box.
4. Consider the capital asset pricing model. The market degree of risk aversion, A, is 2.75. The standard deviation of return on the market portfolio is 26%. If the risk-free rate of return is 1.75%, what is the expected return on the market portfolio? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.
5. The risk-free rate is 5 percent. The expected market rate of return is 15 percent. You expect a stock with a beta of 1.3 to offer a rate of return of 12 percent. According to CAPM, what is the stock's alpha? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.