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how to solve part 2 Problem 21 Intro You've analyzed IBM's stock and expect it to deliver a return of 12% over the next year.
how to solve part 2
Problem 21 Intro You've analyzed IBM's stock and expect it to deliver a return of 12% over the next year. The stock has a beta of 0.7. The risk-free rate is 2.5% and the expected market risk premium is 4.5%. Attempt 2/10 for 10 pts. Part 1 What is the security's expected alpha? 6.35% Correct = Note that the market risk premium of 4.5% is net of the risk-free rate, by definition of a risk premium: E(T)CAPM = Tf+B(E(TM) - r) = 0.025 +0.7 0.045 = 0.0565 a = E(r)security analysis E(T)CAPM = 0.12 0.0565 = 0.0635 Attempt 3/10 for 10 pts. Part 2 What is the security's expected alpha in equilibrium according to the CAPM? + decimals Previous answers: 6%; 5.65%Step by Step Solution
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