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25 December, 05:47

Consider the following information: Portfolio Expected Return Beta Risk-free 6 % 0 Market 10.2 1.0 A 8.2 1.4 a. Calculate the return predicted by CAPM for a portfolio with a beta of 1.4. (Round your answer to 2 decimal places.) b. What is the alpha of portfolio A. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

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  1. 25 December, 06:18
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    a. 11.88%

    b. - 3.68%

    Explanation:

    Given that

    Risk free rate = 6%

    Beta = 1.4%

    Market rate = 10.2%

    Risk free rate = 6%

    Alpha return = 8.2%

    a. The computation of expected return of portfolio is given below:-

    = Risk free rate + Beta (Market rate - Risk free rate)

    = 6% + 1.4% (10.2% - 6%)

    = 11.88%

    b. The calculation of Alpha of portfolio is shown below:-

    = Alpha return - Expected return

    = 8.2% - 11.88%

    = - 3.68%
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