What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B? The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.
A)-1.25 percent
B)0.47 percent
C)1.08 percent
D)1.46 percent
E)2.04 percent

Question

What is Jensen's alpha of a portfolio comprised of 45 percent portfolio A and 55 percent of portfolio B?  The risk-free rate is 3.1 percent and the market risk premium is 6.8 percent.
A)-1.25 percent 
B)0.47 percent 
C)1.08 percent 
D)1.46 percent 
E)2.04 percent

Quizplus · Accepted Answer

Portfolio average return = (.45 × .189) + (.55 × .132) = .1577Portfolio beta = (.45 × 1.92) + (.55 × 1.27) = 1.56CAPM return = .031 + 1.56(.068) = .1373Jensen's alpha = .1577 - .1373 = 2.04 percent

What Is Jensen's Alpha of a Portfolio Comprised of 45