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Use the following information to answer the question(s) below.
Assume that the economy has three types of people.20% are fad followers,75% are passive investors,and 5% are informed traders.The portfolio consisting of all informed traders has a beta of 1.4 and an expected return of 16%.The market has an expected return of 10% and the risk-free rate is 4%.
-The alpha for the passive investors is closest to:
Discount Rate
The interest rate used in discounted cash flow (DCF) analysis to determine the present value of future cash flows.
Useful Life
The estimated lifespan of a fixed asset, during which it can be expected to contribute to company operations.
Present Value
The current value of a future sum of money or stream of cash flows given a specified rate of return, used in discounting to account for the time value of money.
Annual Cash Inflows
The total amount of money, primarily from operating activities, investments, and financing, that enters a company within a year.
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