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Ryan and Brian run the following mutual funds. Suppose that the risk-free rate is 3%, the market risk premium is 7%, and the

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Answer #1

Required rate of return = Risk free rate + (Beta * market risk premium)
= 3% + (0.5 * 7)
= 3% + 3.5%
= 6.5%

Alpha on Ryan's portfolio = Expected return - required return
= 6% - 6.5%
= -0.5%

Alpha on Ryan's portfolio = -0.5%

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