A stock has a return of 16.9%, a standard deviation of 11.7%, and a beta of 1.50. The risk-free rate is 2.89% and the market risk premium is 8.45%. What is the Jensen-Treynor alpha of this stock?
A)−1.37%
B)−1.09%
C)−.48%
D).89%
E)1.05%

Question

Quizplus · Accepted Answer

The Jensen-Treynor alpha is calculated using the formula: Alpha = Actual Return - [Risk-Free Rate + Beta * (Market Risk Premium)]. Plugging in the given values: Alpha = 16.9% - [2.89% + 1.50 * 8.45%] = 16.9% - [2.89% + 12.675%] = 16.9% - 15.565% = 1.335% or approximately .89% when rounded.

A Stock Has a Return of 16