The risk-free rate is 4.0 percent and the expected return on the market is 8 percent.Stock A has a beta of 1.35.For a given year,Stock A returned 12.0 percent while the market returned 8.80 percent.The systematic portion of Stock A's unexpected return was ________ percent and the unsystematic portion was ________ percent.
A) 0.80; 1.30
B) 0.90; 1.40
C) 1.08; 1.52
D) 1.40; 0.90
E) 4.62; 1.41

Question

Quizplus · Accepted Answer

E(R_a) = 4.0 + 1.35(8 - 4) = 9.40% R_a - E(R_a) = 12.0 - 9.4 = 2.6% R_m - E(R_m) = 8.80 - 8 = 0.80 [R_m - E(R_m)] × Beta = 0.80 × 1.35 = 1.08% [R_a - E(R_a)] - [R_m - E(R_m)] × beta = 2.6 - 0.80 = 1.52 The systematic portion of the unexpected return is 1.08 percent and the unsystematic portion is 1.52 percent.

The Risk-Free Rate Is 4