on the last trading day of 2000 29 december 2000 an analyst is reviewing his valuati 543626

On the last trading day of 2000 (29 December 2000), an analyst is reviewing his valuation of Wal-Mart Stores (NYSE: WMT). The analyst has the following information and assumptions:

• The current price is $53.12.
• The analyst”s estimate of WMT”s intrinsic value is $56.00.
• In addition to the full correction of the difference between WMT”s current price and its intrinsic value, the analyst forecasts additional price appreciation of $4.87 and a cash dividend of $0.28 over the next year.
• The required rate of return for Wal-Mart is 9.2 percent.

A. What is the analyst”s expected holding-period return on WMT?

B. What is WMT”s ex ante alpha?

C. Calculate ex post alpha, given the following additional information.

Over the next year, 29 December 2000 through 3 1 December 2001, Wal-Mart”s actual rate of return was 8.9 percent.

In 2001, the realized rate of return for stocks of similar risk was – 10.4 percent.