A portfolio has an actual return of 15.17 percent, a beta of .93, and a standard deviation of 7.2 percent. The market return is 13.4 percent and the risk-free rate is 2.8 percent. What is the portfolio's Jensen's alpha?
A) 2.25 percent
B) 2.51 percent
C) 2.67 percent
D) 3.96 percent
E) 4.04 percent

Question

Quizplus · Accepted Answer

Jensen's alpha is calculated as: Alpha = Actual Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]. Substituting the given values: Alpha = 15.17% - [2.8% + 0.93 * (13.4% - 2.8%)] = 2.51%.

A Portfolio Has an Actual Return of 15