The market has 3 types of investors: 20% fad followers; 75% passive investors, and the remaining are informed traders. The portfolio of informed traders has a beta of 1.4, and expected return of 16%. The market has an expected return of 10%, and the risk-free rate is 4%. What is the alpha for the informed traders? Ans.: ________%.

• A. -2.4
• B. -.9
• C. 0.0
• D. 3.6

Use data from Q6 above, the alpha for the passive investors is closest to ________%. Hint: passive investors simply hold the market portfolio.

• A. -2.4
• B. -.9
• C. 0.0
• D. 3.6

Use the data from Q6 above, the expected return of the fad follower's portfolio is closest to _______%. Hint: fad followers take the counter-party positions of the informed traders while passive investors simply invest in the market portfolio.

• A. 8.5
• B. 12.4
• C. 13.6
• D. 16.0