Question

Below, are Ally Corp's return over the prior 3 years, the market return over the prior 3 years, and the risk-free rate over the prior 3 years:

Year 1: Ally 11%          Market 10%                  risk-free rate 1%

Year 2: Ally 13%     Market -3%     risk-free rate 2.4%

Year 3: Ally 21%           Market 28%    risk-free rate 1.6%

Please calculate Ally's CAPM alpha (alpha) by performing a market model regression of Ally's excess returns over the 3 year period on the market's excess returns over the period and providing the estimated intercept of the model.

Answer 1

Answer is Alpha (intercept) = 0.1047

Formulae

The direct formula for Beta is as above.