What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B?
The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.
A) −1.25 percent
B) 0.47 percent
C) 1.08 percent
D) 1.46 percent
E) 2.04 percent

Question

What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B?
 The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.
A) −1.25 percent 
B) 0.47 percent 
C) 1.08 percent 
D) 1.46 percent 
E) 2.04 percent

Quizplus · Accepted Answer

Portfolio average return = (0.45 × 0.189) + (0.55 × 0.132) = 0.1577
Portfolio beta = (0.45 × 1.92) + (0.55 × 1.27) = 1.56
CAPM return = 0.031 + 1.56 (0.068) = 0.1373
Jensen's alpha = 0.1577 − 0.1373 = 2.04 percent

What Is Jensen's Alpha of a Portfolio Comprised of 45