Suppose you are a fund manager and you want to build your portfolio such that...
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Suppose you are a fund manager and you want to build your portfolio such that it has an alpha of 2% and a beta of zero. What must be your portfolios weights on stock A, the market, and risk-free asset?
You run a regression of the excess returns of stock A on the excess returns of the market portfolio M and obtain the following output: RA Re = -.04 + 1.0 (RM Rp) + error The expected return of the market portfolio is 10% and the risk-free rate is 5%. You run a regression of the excess returns of stock A on the excess returns of the market portfolio M and obtain the following output: RA Re = -.04 + 1.0 (RM Rp) + error The expected return of the market portfolio is 10% and the risk-free rate is 5%
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