Suppose you are a fund manager and you want to build your portfolio such that it has an alpha of 2% and a beta of zero. What must be your portfolios weights on stock A, the market, and risk-free asset?

You run a regression of the excess returns of stock A on the excess returns of the market portfolio M and obtain the following output: RA Re = -.04 + 1.0 (RM Rp) + error The expected return of the market portfolio is 10% and the risk-free rate is 5%. You run a regression of the excess returns of stock A on the excess returns of the market portfolio M and obtain the following output: RA Re = -.04 + 1.0 (RM Rp) + error The expected return of the market portfolio is 10% and the risk-free rate is 5%