19. CAPM and alpha () a) Recently you have received a tip that the stock of Buttercup Industries is going to rise from $74.00 to $85.00 per share over the next year. You know that the annual return on the S&P 500 has been 14% and the 90-day T-bill rate has been yielding 4% per year over the past 10 years. If beta for Buttercup is .9, Q: What is the alpha of the stock and will you purchase the stock? (6 points) b) Jonathan Crowley is a portfolio manager for a large pension fund. Last year his portfolio had an actual return of 14.5% with a standard deviation of 20% and a beta of 1.5. The market risk premium for this period of time was 7% and the risk-free rate of return was 3%. b.1) Based on the Capital Asset Pricing Model (CAPM), what is the required rate of return for this portfolio? (3 points) b.2) Does Jonathans portfolio plot above or below the security market line? (3 points) b.3) What is Jonathan Crowley's portfolio alpha? Based on your calculation, is he a good portfolio manager? (3 points)