A stock has a return of 16.18% and a beta of 1.47. The market return is 10.65% and the risk-free rate is 3.20%. What is the Jensen-Treynor alpha of this stock?
A)−1.12%
B)−.17%
C).66%
D)1.38%
E)1.59%

Question

Quizplus · Accepted Answer

The Jensen's alpha is calculated using the formula: Alpha = Actual Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]. Plugging in the given values: Alpha = 16.18% - [3.20% + 1.47 * (10.65% - 3.20%)] = 16.18% - [3.20% + 1.47 * 7.45%] = 16.18% - [3.20% + 10.97%] = 16.18% - 14.17% = 2.01%. However, none of the options match this calculation directly, suggesting a possible miscalculation or misunderstanding in the question's premise or the options provided. Given the options, the closest approach to calculate the Jensen's alpha or a related measure might involve a different interpretation or a specific aspect of the calculation not covered in the initial response.

A Stock Has a Return of 16