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What is the capm alpha of stock b

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Suppose you are a mutual fund manager. You are planning to invest in a portfolio consisting of two stocks. Stock A has an expected return of 9% and a standard deviation of 17%. Stock B has a standard deviation of 38%, and the covariance between Stock B and the market is 0.089. The two stocks have correlation of 25%. Assume that the market earns expected return of 14% and a standard deviation of 22%, and the risk free rate is 2%.

1) Assuming the CAPM holds, what is the beta for Stock A?

2) Assuming the CAPM holds, what is the beta for Stock B?

3) Suppose Stock B has a realized return of 20%. What is the CAPM Alpha (mispricing) of stock b?

Reference no: EM132842622

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