Question
his question is a continuation of Question 6 , with key information is reproduced below to ease readability: The mean and variance on returns of
his question is a continuation of Question 6, with key information is reproduced below to ease readability:
The mean and variance on returns of stock B are 0.05 and 0.09, respectively. The mean and variance on returns of the market portfolio are 0.08 and 0.25, respectively. The correlation coefficient on returns between stock B and the market portfolio is 0.6.
Suppose that you estimate the following regression on stock B:
where rB = return on stock B and rM = return on the market portfolio.
Required: Calculate the alpha of the regression and write your answer in 2 decimals and in percentage form (e.g., 1.11% and not 0.00111). You may want to show your working/calculation so that partial marks can be allocated for incorrect answer.
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