In: Finance
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?
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]