Assume the economy consists of three types of people. 50% are fadfollowers, 45% are passive investors who have read this book and so hold the marketportfolio, and 5% are informed traders. The portfolio consisting of all the informed traders has a beta of 1.50 and an expected return of 15%. The market expected return is 11%. Therisk-free rate is 5%.

a. What alpha do the informed tradersmake?

b. What is the alpha of the passiveinvestors?

c. What is the expected return of the fadfollowers?

d. What alpha do the fad followersmake?