Assume that the economy has three types of people. 20% are fad followers, 75% are passive investors, and 5% are informed traders
. The portfolio consisting of all informed traders has a beta of 1.4 and an expected return of 16%. The market has an expected return of 10% and the risk-free rate is 4%. The alpha for the informed investors is closest to:
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The gain amounts to $14,100.
B is the correct response to that question.
