Answer: Asset JKL

The portfolio manager should select Asset JKL. This decision is based on the calculation of both marginal Value at Risk (VaR) and Jensen's Alpha for each asset. Marginal VaR is determined by the formula: Marginal VaR of asset i = (VaRp/Valuep) * Betai. Since the VaRp/Valuep ratio is constant for all assets, the Beta value is the key determinant of the marginal VaR. Jensen's Alpha measures the performance of an asset against the expected return based on its systematic risk and is calculated as: Jensen's Alpha = Actual return - (risk-free rate + (Market return - risk-free rate) * Beta). The market risk premium is the difference between the expected market return and the risk-free rate, which in this case is 5% (0.08 - 0.03). Among the assets with Jensen's Alphas greater than or equal to the market risk premium, Asset JKL has the lowest marginal VaR. The calculations for each asset are as follows: - BDE: Marginal VaR = 1.2W, Expected Return = 9.0%, Jensen's Alpha = 5.0% - JKL: Marginal VaR = 0.9W, Expected Return = 7.5%, Jensen's Alpha = 5.5% - MNO: Marginal VaR = 1.0W, Expected Return = 8.0%, Jensen's Alpha = 5.0% - STU: Marginal VaR = 0.8W, Expected Return = 7.0%, Jensen's Alpha = 3.0% Where W = VaRp/Valuep. Given that Asset JKL has the lowest marginal VaR and a Jensen's Alpha greater than the market risk premium, it is the optimal choice for the portfolio manager.

Author: LeetQuiz Editorial Team