XYZ’s historical alpha is 1.3%.

8.You need to estimate the equity cost of capital for XYZ Corp. Unfortunately, you only have the following data available regarding past returns:

 

Year Risk-free Return Market Return XYZ Return
2007 4% 6% 8%
2008 1% -43% -50%

 

Estimate XYZ’s historical alpha.

XYZ’s historical alpha is 1.1%.

XYZ’s historical alpha is 1.6%.

XYZ’s historical alpha is 1.9%.

XYZ’s historical alpha is 1.3%.