Question

The expected return on the market portfolio is 14%. The risk-free rate is 6%. The expected return on SDA Corp. common stock is 13%. The beta of SDA Corp. common stock is 1.30. Within the context of the capital asset pricing model, _________.

Answer 1

-.34%

Step-by-step explanation:

Calculation to determine capital asset pricing model,

Alpha=.13-[.06+1.30(.14-.06)]

Alpha=.13-[.06+1.30(.08)]

Alpha=.13-[.06+0.104]=

Alpha=.13-0.164

Alpha=-.34%

Therefore Within the context of the capital asset pricing model, is -.34%