A portfolio generates an annual return of 16%,a beta of 1.2 and a standard deviation of 19%.The market index return is 12% and has a standard deviation of 16%.What is Jensen's alpha of the portfolio if the risk free rate is 6%?
A) .017
B) .028
C) .036
D) .078

Question

Quizplus · Accepted Answer

Jensen's alpha is calculated as: Alpha = Portfolio Return - [Risk-Free Rate + Beta * (Market Return - Risk-Free Rate)]. Substituting the given values: Alpha = 0.16 - [0.06 + 1.2 * (0.12 - 0.06)] = 0.028.

A Portfolio Generates an Annual Return of 16%,a Beta of 1.2