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.

Enter your answer below rounded to four decimal places in decimal form. For example, if you find estimated alpha is 9.73% enter .0973

Answer 1

Answer is Alpha (intercept) = 0.1047

Formulae

The direct formula for Beta is as above.