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Assume that the economy has three types of people. 15% are fad followers, 75% are passive...

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Finance

Assume that the economy has three types of people. 15% are fadfollowers, 75% are passive investors, and 10% are informed traders.The portfolio consisting of all informed traders has a beta of 1.3and an alpha of 2.62%. The market has an expected return of 12% andthe risk-free rate is 4 %.

What is the alpha for the fad followers? Enter your answer as apercentage to two decimal places (i.e. 0.12% rather than 0.0012;the percent sign is not necessary).

Answer & Explanation Solved by verified expert
3.9 Ratings (662 Votes)
Expected return on market 12 Risk free rate 4 Beta of informed traders 13 Expected Return of informed investors according to CAPM Risk free rate BetaExpected market return risk free rate 4 1312 4 4 13 x 8 4 104 1440 Alpha of informed investors Expected return of informed investors Expected return of informed investors according to CAPM 262 Expected return of informed investors 1440 Expected return of informed investors 1440 262 1702 As we know that passive investors invest in    See Answer
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Assume that the economy has three types of people. 15% are fadfollowers, 75% are passive investors, and 10% are informed traders.The portfolio consisting of all informed traders has a beta of 1.3and an alpha of 2.62%. The market has an expected return of 12% andthe risk-free rate is 4 %.What is the alpha for the fad followers? Enter your answer as apercentage to two decimal places (i.e. 0.12% rather than 0.0012;the percent sign is not necessary).

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