A portfolio has a total return of 10.5%, a beta of 0.72 and a standard deviation of 6.3%. The risk free rate is 3.8%, the market return is 12.4%. Jensen's measure of this portfolio's performance is
A) 0.5%.
B) 4.3%.
C) 7.9%.
D) 9.3%.

Question

Quizplus · Accepted Answer

Jensen's Alpha is calculated as: α = Rp - [Rf + β(Rm - Rf)], where Rp is the portfolio return, Rf is the risk-free rate, β is the beta of the portfolio, and Rm is the market return. Plugging in the given values: α = 10.5% - [3.8% + 0.72(12.4% - 3.8%)] = 10.5% - [3.8% + 6.2%] = 10.5% - 10% = 0.5%.

A Portfolio Has a Total Return of 10