Your portfolio actually earned 4.39% for the year. You were expecting to earn 6.27% based on the CAPM formula. What is Jensen's alpha if the portfolio standard deviation is 12.1% and the beta is .99?
A)−5.28%
B)−3.40%
C)−2.34%
D)−2.40%
E)−1.88%

Question

Quizplus · Accepted Answer

Jensen's alpha is calculated as the actual portfolio return minus the expected return based on the CAPM formula. Here, the actual return is 4.39% and the expected return is 6.27%. Therefore, Jensen's alpha = 4.39% - 6.27% = -1.88%. The portfolio's standard deviation and beta are not needed to calculate Jensen's alpha.

Your Portfolio Actually Earned 4