Jensen's alpha is calculated using the following formula based on the Capital Asset Pricing Model (CAPM):

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

Where:

• $R_p$ = Average return on the portfolio = 12.5%
• $R_f$ = Risk-free rate = 3%
• $\beta$ = Beta of the portfolio = 1.55
• $\alpha$ = Jensen's alpha = 2.11%
• $R_m$ = Return on the market portfolio

Substituting the given values: $2.11% = 12.5% - [3% + 1.55 \times (R_m - 3%)]$`$2.11\% = 9.5\% - 1.55 \times (R_m - 3\%)$ $1.55` \times (R_m - 3\%) = 9.5\% - 2.11\%$ $1.55 \times (R_m - 3%) = 7.39%$$R_m - 3% = \frac{7.39%}{1.55} = 4.7677%$$R_m = 4.7677% + 3% = 7.7677% \approx 7.77%$