Answer: 0.5%

## Explanation Jensen's alpha measures the excess return of a portfolio over its expected return based on the Capital Asset Pricing Model (CAPM). The formula is: \[ \alpha = R_p - [R_f + \beta (R_m - R_f)] \] Where: - \( R_p \) = Portfolio expected return = 8% - \( R_f \) = Risk-free rate = 5% - \( \beta \) = Portfolio beta = 0.5 - \( R_m \) = Market expected return = 10% **Calculation:** \[ \alpha = 8\% - [5\% + 0.5 \times (10\% - 5\%)] \] \[ \alpha = 8\% - [5\% + 0.5 \times 5\%] \] \[ \alpha = 8\% - [5\% + 2.5\%] \] \[ \alpha = 8\% - 7.5\% \] \[ \alpha = 0.5\% \] Therefore, Jensen's alpha for portfolio A is **0.5%**, which corresponds to option A.

Author: LeetQuiz Editorial Team