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
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