The following data are available relating to the performance of Wildcat Fund and the market portfolio: $$\begin{array} { l c c }
& & { \text { Market } } \
& \text { Wildcat } & \text { Portfolio } \
\text { Average return } & 18 \% & 15 \% \
\text { Standard deviations of returns } & 25 \% & 20 \% \
\text { Beta } & 1.25 & 1.00 \
\text { Residual standard deviation } & 2 \% & 0 \%\

\end{array}$$ The risk-free return during the sample period was 7%. Calculate Jensen's measure of performance for Wildcat Fund.
A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%

Question

The following data are available relating to the performance of Wildcat Fund and the market portfolio: $$\begin{array} { l c c } 
& & { \text { Market } } \
& \text { Wildcat } & \text { Portfolio } \
\text { Average return } & 18 \% & 15 \% \
\text { Standard deviations of returns } & 25 \% & 20 \% \
\text { Beta } & 1.25 & 1.00 \
\text { Residual standard deviation } & 2 \% & 0 \%\

\end{array}$$ The risk-free return during the sample period was 7%. Calculate Jensen's measure of performance for Wildcat Fund.
A) 1.00%
B) 8.80%
C) 44.00%
D) 50.00%

Quizplus · Accepted Answer

Jensen's measure is calculated as: $ \alpha = R_i - [R_f + \beta_i (R_m - R_f)] $. For Wildcat Fund: $ \alpha = 18\% - [7\% + 1.25(15\% - 7\%)] = 1\% $.

The Following Data Are Available Relating to the Performance of Wildcat