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Answer: 11.5%
## Explanation According to Jensen's measure of portfolio performance: **Jensen's Alpha Formula:** αₚ = E(Rₚ) − [R_f + [E(R_m) − R_f]βₚ] Where: - αₚ = Alpha (1%) - E(Rₚ) = Expected portfolio return (14%) - R_f = Risk-free rate (4%) - E(R_m) = Expected market return (unknown) - βₚ = Beta (1.2) **Step-by-step calculation:** 1% = 14% − [4% + 1.2(x − 4%)] 1% = 14% − [4% + 1.2x − 4.8%] 1% = 14% − 4% − 1.2x + 4.8% 1% = 14.8% − 1.2x 1.2x = 14.8% − 1% 1.2x = 13.8% x = 13.8% ÷ 1.2 x = E(R_m) = 11.5% Therefore, the expected market return is **11.5%**.
Author: Tanishq Prabhu
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You have been given the following data for a managed portfolio:
Calculate the return on the market portfolio basing your calculations on Jensen's measure of portfolio performance.
A
15.45%
B
13%
C
11.5%
D
1.3%
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