Suppose you run a linear regression of ABC’s monthly excess return on the monthly excess return of the market portfolio using monthly data from the past 20 years. The outcome of the regressions analysis would give us the estimates for alpha and beta of the following linear regression model
Ri-Rf. alphap.beta; (Rmkt – Rp)
Suppose the risk-free rate is 5%, the expected return on the market portfolio is 12%, the standard deviation of return on the market portfolio is 44%, ABC’s stock return has a standard deviation of 68% and its correlation with the market is 0.91
Assuming CAPM can perfectly explain individual stock returns, the
(a) alpha on ABC’s stock |
(b) beta on ABC’s stock
(c) expected return on ABC’s stock
Please round off the answer to two decimal points.. Get Finance homework help today
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