# Specific return, can somebody explain please

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%.
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!!

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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.

CP

Thank you

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