Part 1 of 4:

Based on the stock's beta and market expected return, stock A's alpha is: 3%

Based on the stock's beta and market expected return, stock B's alpha is: -2.8%

Question

Part 1 of 4:

Based on the stock's beta and market expected return, stock A's alpha is: 3%

Based on the stock's beta and market expected return, stock B's alpha is: -2.8%

BlackTom AI · Accepted Answer

This item presents a setup where we’re told the alphas for two stocks based on their beta and the market’s expected return, and it asks us to identify the numbers that correspond to those alphas.
Option 1: 3%. In the prompt, stock A’s alpha is stated as 3%. Interpreting alpha in this context means the stock’s expected return adjusted for risk (beta) relative to the market; a positive 3% alpha indicates outperformance beyond what CAPM would predict. Since the given information explicitly assigns 3% to stock A, this option aligns directly with the provided value, making it a correct choice for stock A’s alpha.
Option 2: -2.8%. The prompt also states that stock B’s alpha is -2.8%. A negative alpha here implies underperformance relative to the market-adjusted expectation dictated by beta and the market return. This value is consistent with the given data for stock B, so selecting -2.8% correctly reflects stock B’s alpha according to the information supplied.
Note on the structure: because this is labeled a multiple_dropdowns_question and the answer field lists two values (3% and -2.8%), the intended task is to choose the alpha values corresponding to each stock as provided. The absence of explicit answer options in the provided data means we rely on the stated alphas themselves rather than evaluating against a separate set of choices. The reasoning above explains why each listed value matches the corresponding stock as described in the prompt.

COMM_V 298 201-207 2024W2 Class 15: Additional Topics on Risk and Return Practice Quiz

Part 1 of 4: Based on the stock's beta and market expected return, stock A's alpha is: 3% Based on the stock's beta and market expected return, stock B's alpha is: -2.8%

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