Specific return, can somebody explain please

CFA Level I
#1

From 2016 mock from finquiz:

An equity analyst is using the market model to analyze the returns to a stock. During the recent year, the market rose by 5% and the stock rose by 8%. The beta for the stock is 0.66 and alpha is 0.02. Risk free rate is 0 percent. The companyspecific return to the stock during the recent year is closest to: A. 2.7%. B. 4.5%. C. 4.7%. Correct Answer: A Reference: CFA Level I, Volume 4, Study Session 12, Reading 44 Specific return: 0.08 - (0.02 + 0.66 × 0.05) = 2.7%

did not see it on the curriculum… because it is not the jensen alpha formula… what is it?? thank you!!

#2

if you looked only at the return the stock might have earned it was

0.02+0.66*0.05 (CAPM formula)

Company actually earned 8% - so 8% - the CAPM return is what the market paid for “being the company” – company specific return.

#3

Thank you