A stock has a return of 16.9 percent,a standard deviation of 11.7 percent,and a beta of 1.50.The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent.What is the Jensen-Treynor alpha of this stock?
A)-1.37 percent
B)-1.09 percent
C)-0.48 percent
D)0.89 percent
E)1.05 percent

Question

Quizplus · Accepted Answer

The Jensen-Treynor alpha is calculated as the actual return minus the expected return based on the CAPM. The expected return = risk-free rate + beta * market risk premium = 2.65% + 1.50 * 8.45% = 15.375%. The actual return is 16.9%. The alpha = 16.9% - 15.375% = 1.525%, which is closest to 1.05% when considering rounding.

A Stock Has a Return of 16