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Consider three stocks A, B, and C for which you have the following information: C Stock A B Expected Return 15% 19.5% 12.5% Beta
Consider three stocks A, B, and C for which you have the following information: C Stock A B Expected Return 15% 19.5% 12.5% Beta 0.98 1.04 1.27 Moreover, you know that the risk-free rate is Rf = 0.5% and the market expected return is E[RM]= 11%. Using the three stocks, you decide to form a portfolio that has the same systematic risk as the market (i.e., the beta of the portfolio is b = 1) while making sure that stocks A and B receive equal weights. What is the alpha of that portfolio?
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