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During a particular year, the T-bill rate was 6%, the market return was 14%, and a portfolio manager with a beta of 0.5 realized a return of 10%. What was the manager's alpha?

During a particular year, the T-bill rate was 6%, the market return was 14%, and a portfolio manager with a beta of 0.5 realized a return of 10%. What was the manager's alpha?

investments   Ch-18   Alpha   Beta   Market-Return   
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Answer #1

Alpha = Actual Return - CAPM Predicted Return

    Actual Return (given) = 10%

    CAPM Predicted Return = rf + beta • (rM - rf) = 6% + 0.5 • (14% - 6%) = 10%


Alpha = 10% – [6% + 0.5 • (14% - 6%)] = 0.00%


The manager's alpha was 0%.

answered by: Grace Watson
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