Use the following information to answer the question(s) below.

Assume that the economy has three types of people. 20% are fad followers, 75% are passive investors, and 5% are informed traders. The portfolio consisting of all informed traders has a beta of 1.4 and an expected return of 16%. The market has an expected return of 10% and the

riskfree

rate is 4%.

The alpha for the fad follower's portfolio is closest to:

Question content area bottom

Part 1

A.

6.0%.

B.

3.6%.

C.

0.9%.

D.

0.0%.