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

question 65

Multiple Choice

Using the single index model, what is the alpha of a stock with beta of 1.3, a market return of 14%, risk free rate of 4% and the actual return of the stock is 14%?

• A) −1.37%
• B) 0.75%
• C) 1.80%
• D) 2.11%
• E) −3.00%

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Definitions:

Personal Selling

A direct form of marketing that involves a salesperson presenting the benefits of a product directly to a customer in order to make a sale.

Price Fixing

An illegal practice where businesses agree on the prices of their products or services, instead of letting market forces determine them.

Odd Pricing

A pricing strategy that sets prices at figures ending in odd numbers, like $4.99, under the belief that they seem lower to consumers.

Seven-Step Sales Process

A sequence of steps salespeople follow to sell a product, typically including preparation, approach, presentation, handling objections, closing, and follow-up.