1) You are evaluating a stock mutual fund that is among your employer’s 401k fund electives. The fund is actively managed and seeks to outperform the S&P 500. Over the past 10 years, the fund returned 10.25% per year and had a beta = 0.8.
Over the same period, the S&P 500 returned 10% and the risk-free rate was 3%.
Calculate the fund’s CAPM alpha.
Sample Solution
