a. SDA Stock is underpriced b. SDA Corp. stock\'s alpha is –1.80% c. SDA stock i

Question

a. SDA Stock is underpriced     b. SDA Corp. stock's alpha is –1.80%    c. SDA stock is fairly priced     d. SDA stock's alpha is 1.8%

On January 1, you sold one March maturity S&P 500 Index futures contract at a futures price of 900. If the futures price is 1,000 on February 1, what is your profit or loss? The contract multiplier is $250. (Input the amount as positive value.)

82. The expected return on the market portfolio is 19%. The risk-free rate is 11%. The expected return on SDA Corp. common stock is 18%. The beta of SDA Corp. common stock is 1.10. Within the context of the capital asset pricing model, _________.

Explanation / Answer

Capm return = risk free rate + beta( return from market-risk free rate)

= 11+1.10(19-11)

=19.8%

Expected return on stock =18%

Alpha = expected return- Capm return

= 18-19.8

= -1.8%

2. Sell future = 900*250= 225000

   counter buy= 1000*250=250000

hence the loss sustained by him = 225000-250000

=(25000).

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