The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: $\begin{array}{lcc}
& & \text { Market } \ & \text { Sooner } & \text { Portfolio } \
\text { Average return } & 20 \% & 11 \% \
\text { Standard deviations of returns }& 44 \% & 19\% \
\text { Beta } & 1.8 & 1.0 \
\text { Residual standard deviation } & 2.0\% & 0.0\%
\end{array}$ The risk-free return during the sample period was 3%. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.
A) 2.6%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Question

The following data are available relating to the performance of Sooner Stock Fund and the market portfolio: $\begin{array}{lcc} 
& & \text { Market } \ & \text { Sooner } & \text { Portfolio } \
\text { Average return } & 20 \% & 11 \% \
\text { Standard deviations of returns }& 44 \% & 19\% \
\text { Beta } & 1.8 & 1.0 \
\text { Residual standard deviation } & 2.0\% & 0.0\%
\end{array}$ The risk-free return during the sample period was 3%. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.
A) 2.6%
B) 4.00%
C) 8.67%
D) 31.43%
E) 37.14%

Quizplus · Accepted Answer

The Jensen measure is calculated as: $ \alpha = R_p - [R_f + \beta(R_m - R_f)] $. For Sooner: $ \alpha = 20\% - [3\% + 1.8(11\% - 3\%)] = 2.6\% $.

The Following Data Are Available Relating to the Performance of Sooner