The “Alpha” case… Question 1 uses a macroeconomic factor model and asks for the *expected return* on the energy sector. From the text, and even from the solution, expected return in this kind of factor model is equal to the intercept, because the expected return occurs when there are no surprises. So, I chose the my answer based on this logic (got the question wrong). However, the question stem gives you information for economic surprises (I figured they were looking to see if we know how to interpret the intercept). The answer just calculates the return (based on the surprises plus the expected return), but very clearly shows the intercept (my answer) as the *expected return* on asset/sector i.

To me, the question is sloppy. Sure, it’s one extra word (expected return vs. return), but by definition, the expected return in this model uses no surprises.

Did anyone else notice this? Thoughts?