Explanation

Jensen's alpha is calculated using the formula:

$\alpha = R_p - [R_f + \beta (R_m - R_f)]$

Where:

• $\alpha$ = Jensen's alpha = 4.75% = 0.0475
• $R_p$ = Portfolio return = 14.2% = 0.142
• $R_f$ = Risk-free rate = 4.25% = 0.0425
• $R_m - R_f$ = Market risk premium = 6% = 0.06

Rearranging the formula to solve for beta:

$\beta = \frac{R_p - R_f - \alpha}{R_m - R_f}$

Substituting the values:

$\beta = \frac{0.142 - 0.0425 - 0.0475}{0.06}$ $\beta = \frac{0.052}{0.06}$ $\beta = 0.8667$

The beta of 0.8667 is closest to 0.87, which corresponds to option B.