Using the Single Index Model, What Is the Alpha of a Stock

question 26

Multiple Choice

Using the single index model, what is the alpha of a stock with beta of 1.2, a market return of 14%, risk free rate of 3% and the actual return of the stock is 18%?

• A) −1.37%
• B) 0.75%
• C) 1.80%
• D) 2.11%
• E) −3.12%

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Definitions:

FIFO Retail Inventory Method

An inventory valuation method which assumes that items purchased or produced first are sold first, thereby computing inventory based on the most recent prices.

Ending Inventory

The value of goods available for sale at the end of an accounting period, calculated as beginning inventory plus purchases minus cost of goods sold.

Net Markups

The amount added to the cost price of goods to cover overhead and profit, minus any discounts or allowances.

Retail Inventory Method

A method used in accounting to estimate the value of a store's merchandise based on the retail price of the inventory.