Explanation:
The correct answer is C.
According to Jensen's measure of performance:
αₚ = E(Rₚ) − [R_f + [E(Rₘ) − R_f]βₚ]
1% = 14% − [4% + 1.2(x − 4%)]
1% = 14% − [4% + 1.2x − 4.8%]
1% = 14% − 4% − 1.2x + 4.8%
1.2x = 13.8%
x = E(Rₘ) = 11.5%
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Q.209 You have been given the following data for a managed portfolio:
Beta = 1.2
Alpha = 1%
Average return = 14%
Risk-free rate = 4%
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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