Answer the following three questions regarding the different ways of thinking in the investment process for passive and active investors.

Analysts expected target price on the Blackstone stock in one year is 38 dollars. Risk free rate is 0%. Expected market return is 9%. Blackstones market beta is 2. What is todays fair price for Blackstone?

38

30

33.8

32.2

How would you trade Blackstone to both generate positive alpha and earn a positive market risk premium at the same time after one year?

Short sell it if its price is higher than its fair price today

Short sell it if its price is lower than its fair price today

Buy it if its price is higher than its fair price today

Buy it if its price is lower than its fair price today

What is your CAPM alpha for holding the stock for one year if you buy Black Stone at a price of 30?

0%

27%

18%

9%