Using the Index Model, the Alpha of a Stock Is

question 79

Multiple Choice

Using the index model, the alpha of a stock is 3%, the beta is 1.1, and the market return is 10%. What is the residual given an actual return of 15%?

• A).0%
• B) 1%
• C) 2%
• D) 3%

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Definitions:

Pre-Tax Loan Rate

The interest rate on a loan before taking into account any tax deductions that might apply.

Straight-Line Depreciation

A method of allocating the cost of a tangible asset over its useful life in equal annual installments.

Tax Loss Carryovers

Provisions that allow businesses or individuals to use their current losses to offset future profits or income for tax purposes, potentially reducing future tax liabilities.

Tax Rate

The percentage of an individual's or corporation's income taken as tax.