The risk-free rate is 1.69%, a stock's adjusted systematic risk exposure is 1.04, and the market risk premium is 6.53%. If the expected return for this stock is 8.14%, then what is the estimated alpha according to the Capital Asset Pricing Model? State your answer as a percentage with two decimal places and not in decimal form (i.e, 13.21, not 0.1321).

To calculate the estimated alpha, we need to compare the expected return of the stock with the expected return predicted by the Capital Asset Pricing Model (CAPM).

The CAPM formula is given by:

\[
\text{Expected return} = R_f + \beta \times (\text{Market risk premium})
\]

Where:
- \(R_f\) is the risk-free rate (1.69%)
- \(\beta\) is the systematic risk exposure (1.04)
- The market risk premium is 6.53%

Substitute the given values into the formula to calculate the CAPM expected return:

\[
\text{CAPM Expected return} = 1.69 + 1.04 \times 6.53
\]

Next, the alpha is the difference between the actual expected return and the CAPM expected return:

\[
\alpha = \text{Expected return} - \text{CAPM Expected return}
\]

Let me calculate this.The estimated alpha according to the Capital Asset Pricing Model (CAPM) is \(-0.34\%\). This means the stock is underperforming relative to its expected return based on the CAPM.

Do you want more details or have any further questions?

Here are 5 related questions you might find helpful:
1. How does alpha affect investment decisions?
2. What does a positive alpha indicate for a stock?
3. How is beta used to measure systematic risk in CAPM?
4. What are the limitations of using the CAPM model in practice?
5. How does the market risk premium influence stock returns?

**Tip:** A negative alpha suggests that a stock is underperforming its expected return relative to the market.

Calculate the alpha for a stock using the CAPM model. Given a 1.69% risk-free rate, 1.04 beta, and 6.53% market risk premium, this problem helps you understand how to find the estimated alpha and assess stock performance. Ideal for finance and economics students.

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