The risk-free rate is 3.0 percent and the expected return on the market is 9 percent.Stock A has a beta of 1.20.For a given year,Stock A returned 12.5 percent while the market returned 9.75 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)1.11; 2.30
D)1.40; 0.90
E)4.62; 1.41

Question

Quizplus · Accepted Answer

E(R_a) = 3.0 + 1.2(9 - 3) = 10.20%R_a - E(R_a) = 12.5 - 10.2 = 2.3%R_m - E(R_m) = 9.75 - 9 = 0.75[R_m - E(R_m)] × Beta = 0.75 × 1.2 = 0.90%[R_a - E(R_a)] - [R_m - E(R_m)] × beta = 2.3 - 0.75 = 1.400The systematic portion of the unexpected return is 0.90 percent and the unsystematic portion is 1.40 percent.

The Risk-Free Rate Is 3