Final answer:
The investment's alpha is calculated as the actual return minus the expected return based on the beta, which is 7% - 4% = 3%.
Step-by-step explanation:
Based on its beta, an investment is expected to earn 4%, but it actually returned 7%.
The investment's alpha is a measure of performance on a risk-adjusted basis. It is the excess return of an investment relative to the return of a benchmark index.
In this case, it would be the actual return (7%) minus the expected return (4%), resulting in an alpha of 3%.