Suppose a fund achieves an average return of 10%. Assume that risk-free rate is 0% and...

Suppose a fund achieves an average return of 10%. Assume that risk-free rate is 0% and market risk premium is 10%, and this fund has a beta of 1.5.

What is the alpha of this fund?

Solutions

Expert Solution

Alpha = Expected return - Required return

Alpha = 10% - [Rf + beta (Rm-Rf)]

Alpha = 10% - [0%+ 1.5 (10%)]

Alpha = 10% - 15% = -5%

Answer : Alpha = - 5% [Thumbs up please]

jeff jeffy answered 2 years ago

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