You want to evaluate three mutual funds using the Jensen measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 18%. The average returns, standard deviations, and betas for the three funds are given below.

The fund with the highest Jensen measure is
A) Fund A.
B) Fund B.
C) Fund C.
D) Funds A and B (tied for highest).
E) Funds A and C (tied for highest).

Question

You want to evaluate three mutual funds using the Jensen measure for performance evaluation. The risk-free return during the sample period is 6%, and the average return on the market portfolio is 18%. The average returns, standard deviations, and betas for the three funds are given below.

The fund with the highest Jensen measure is

The fund with the highest Jensen measure is
A) Fund A. 
B) Fund B. 
C) Fund C. 
D) Funds A and B (tied for highest). 
E) Funds A and C (tied for highest).

Quizplus · Accepted Answer

A: 17.6% − [6% + 1.2(18% − 6%)] = −2.8%; B: 17.5% - [6% + 1.0(18% − 6%)] = −0.5; C: 17.4% − [6% + 0.8(18% − 6%)] = +1.8.

You Want to Evaluate Three Mutual Funds Using the Jensen