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:

Primary Alcohol

An alcohol with the -OH group attached to a carbon atom that is itself bonded to no more than one other carbon atom.

Aldehyde

An organic compound characterized by the presence of a carbonyl group (C=O) attached to at least one hydrogen atom.

Major Structure

The most stable or predominant structure of a molecule among several possible ones under given conditions.

Major Structure

The most stable or dominant arrangement of atoms within a molecule out of all possible isomeric forms.