a. Assume the market return is 12% and the risk-free rate is 6%. Bassoon Ltd...
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a. Assume the market return is 12% and the risk-free rate is 6%. Bassoon Ltd shares have provided 13% actual return, while Piccolo Ltd shares have provided 15% actual return. If the beta of Bassoon Ltd shares is 1.1 and the beta of Piccolo Ltd shares is 1.6, calculate the alphas of both shares. (HINT: The alpha is the measure of the outperformance or underperformance of the stock's actual return compared to the expected return under CAPM.) b. Outline one point of similarity with - and one point of contrast between the CAPM and the APT (Arbitrage Pricing Theory)
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