Nirupa, an Investment Advisor, is on the task to work out the expected rate of return for a share of Manushrut Ltd. You are required to help her, based on the following information : Beta value: 1.50 Risk free rate of re

Expected Rate of Return (as per CAPM) Expected Rate of Return (ER) = Risk Free Rate (Rf) + Beta (Rm - Rf) ER = 6% + 1.5 (12% - 6%) ER = 6% + 1.5 (6%) ER = 6% + 9% ER = 15% Actual Return from the share of Manushrut Ltd. if Alpha is 1.5 Alpha = Actual Return (AR) - Expected Return (ER) 1.5% = AR - 15% AR = 15% + 1.5% AR = 16.50% Significance of Alpha Value in the Investment Market Alpha is a measure of a portfolio's or stock's performance relative to the return of a benchmark index, given its level of risk (beta). If Alpha is positive (e.g., 1.5% in this case), it indicates that the stock or portfolio has outperformed its expected return based on its risk. This suggests that the investment manager or the stock itself has generated excess returns beyond what would be predicted by the CAPM. A positive alpha is generally desirable for investors. If Alpha is zero, it means the stock or portfolio has performed exactly as expected given its risk. If Alpha is negative, it indicates underperformance relative to its expected return, suggesting that the investment has generated lower returns than predicted by the CAPM for its level of risk. In essence, alpha measures the value added by an investment manager or the intrinsic value of a stock beyond market movements. A positive alpha is often seen as a sign of skill or a mispriced security.