Question

The expected return on the market portfolio is 18%. The risk-free rate is 10%. The expected return on SDA Corp. common stock is 17%. The beta of SDA Corp. common stock is 1.25. Within the context of the capital asset pricing model, _________.

Answer 1

Answer:

The answer is SDA Corp stocks alpha is -1.75%

Explanation:

CAPM E($r_{SDA}$) = 10 + 1.25(17 - 10) =

                         = 10 + 1.25(7)=

                         = 10 + 8.75

                          = 18.75%

$\alpha_Sda$ = 17 - 18.75

         = -1.75%