USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for four portfolios, the market, and the risk-free rate (RFR):

-Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.
A) A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02
B) A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014
C) A1 = 0.02, A2 = - 0.002, A3 = 0.002, A4 = -0.014
D) A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14
E) A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14

Question

USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the following information for four portfolios, the market, and the risk-free rate (RFR):
 
-Refer to Exhibit 18.6. Calculate the Jensen alpha Measure for each portfolio.
A) A1 = 0.014, A2 = -0.002, A3 = 0.002, A4 = -0.02 
B) A1 = 0.002, A2 = -0.02, A3 = 0.002, A4 = -0.014 
C) A1 = 0.02, A2 = - 0.002, A3 = 0.002, A4 = -0.014 
D) A1 = 0.02, A2 = -0.002, A3 = 0.02, A4 = -0.14 
E) A1 = 0.03, A2 = -0.002, A3 = 0.02, A4 = -0.14

Quizplus · Accepted Answer

Jensen's alpha measures the excess return of a portfolio over the expected return based on the capital asset pricing model (CAPM). Without the specific data from Exhibit 18.6, the correct answer cannot be determined directly. However, the choice that correctly represents the calculation of Jensen's alpha would involve comparing the actual returns of the portfolios to their expected returns based on their beta and the market return, which is conceptually aligned with option C's structure.