Question 6 The risk-free interest rate is 4% and the expected return on the market portfolio...

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Question 6 The risk-free interest rate is 4% and the expected return on the market portfolio...

Question 6

The risk-free interest rate is 4% and the expected return on the market portfolio is 10%. Scott, a portfolio manager, runs a portfolio that has a beta of 2/3 and an average annual return of 9% per year.

Based on the CAPM, what is the abnormal return (i.e. α) of Scott’s portfolio?

______%

(Note: if you find out that there’s no abnormal return, then just input 0 as your answer.)

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Answer 1

Answer #1

САРМ Ke Rf+Beta*(Rm-Rf) 0.04+2/3*(0.10-0.04) 0.08 8.00% Abnormal Return = Average Annual return-CAPM return 0.09-0.08 1.00%

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