The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $$\begin{array} { l c c }
&& { \text { Market } } \
& \text { Monarch } & \text { Portfolio } \
\text { Average return } & 16 \% & 12 \% \
\text { Standard deviations of returns } &26 \% & 22 \% \
\text { Beta } & 1.15 & 1.00 \
\text { Residual standard deviation } &1\%&0\%\
\end{array}$$ The risk-free return during the sample period was 4%. Calculate Jensen's measure of performance for Monarch Stock Fund.
A) 1.00%
B) 2.80%
C) 44.00%
D) 50.00%

Question

The following data are available relating to the performance of Monarch Stock Fund and the market portfolio: $$\begin{array} { l c c } 
&& { \text { Market } } \
& \text { Monarch } & \text { Portfolio } \
\text { Average return } & 16 \% & 12 \% \
\text { Standard deviations of returns } &26 \% & 22 \% \
\text { Beta } &  1.15 & 1.00 \
\text { Residual standard deviation } &1\%&0\%\
\end{array}$$ The risk-free return during the sample period was 4%. Calculate Jensen's measure of performance for Monarch Stock Fund.
A) 1.00%
B) 2.80%
C) 44.00%
D) 50.00%

Quizplus · Accepted Answer

Jensen's measure is calculated as: $ \alpha = R_i - [R_f + \beta_i (R_m - R_f)] $. For Monarch: $ \alpha = 16\% - [4\% + 1.15 \times (12\% - 4\%)] = 2.80\% $.

The Following Data Are Available Relating to the Performance of Monarch