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A portfolio manager is considering the inclusion of Garmin Ltd (GRMN) in his portfolio. The manager gathers the following information: GRMN current stock price is

A portfolio manager is considering the inclusion of Garmin Ltd (GRMN) in his portfolio. The manager gathers the following information:

  • GRMN current stock price is $53.12.

  • The analysts estimate of GRMNs intrinsic value is $56.00.

  • In addition to the full correction of the difference between GRMNs stock price

    and the estimated intrinsic value, the analyst forecasts additional price

    appreciation of $4.87 and a cash dividend of $0.28 over the next year.

  • The required rate of return for GRMN is to be estimated using the CAPM with the following inputs: risk-free rate of 3.35%, an equity risk premium of 4.5%, and a

    beta of 1.30.

    Now, assume the year passes, and at year-end, the portfolio manager gathers the following additional information:

  • Over the year, the realized return for GRMN was 8.9%.

  • The realized rate of return on stocks of similar risk during the year was negative

    10.4%.

  1. 7.) What is the portfolio managers expected holding period return, in percent, for GRMN over the next year? (2 points)

  2. 8.) What is the portfolio managers estimate of ex-ante alpha, in percent, for GRMN over the next year? (2 points)

  3. 9.) What was the ex-post alpha, in percent, for GRMN over the year? (1 point)

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