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A) You want to evaluate the performance of an asset manager. The risk-free rate is 2%, the market risk premium is 6% and market volatility

A) You want to evaluate the performance of an asset manager. The risk-free rate is 2%, the market risk premium is 6% and market volatility is 10%. The manager's portfolio has a correlation of 0.7 with the market and a volatility of 12%, and her average return is 8%. What is her alpha?

B) What happens to the price dividend ratios of the average firm when the market risk premium increases (all else equal)? a) Unchanged b) Cannot tell c) Downtell d) Up

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