Answer: 4.27%

## 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's expected return = 12.8% - \( R_f \) = Risk-free rate = 4.85% - \( \beta \) = Portfolio beta = 0.7 - \( R_m - R_f \) = Market risk premium = 5.25% **Step-by-step calculation:** 1. Calculate the expected return using CAPM: \[ E(R_p) = R_f + \beta(R_m - R_f) = 4.85\% + 0.7 \times 5.25\% \] \[ E(R_p) = 4.85\% + 3.675\% = 8.525\% \] 2. Calculate Jensen's Alpha: \[ \alpha = R_p - E(R_p) = 12.8\% - 8.525\% = 4.275\% \] 3. Round to 4.27% Therefore, Jensen's Alpha for Portfolio Q is **4.27%**, which corresponds to option D. This positive alpha indicates that Portfolio Q has outperformed its expected return based on its systematic risk level.

Author: LeetQuiz .