The Jensen's measure, or Jensen's alpha, is indeed an absolute measure of return over and above that predicted by the Capital Asset Pricing Model (CAPM). The CAPM is a model that describes the relationship between systematic risk and expected return for assets, particularly stocks. It is used in the pricing of risky securities, generating expected returns for assets given the risk of those assets and calculating costs of capital. The Jensen's measure takes this a step further by comparing the actual returns of a portfolio or an investment with the returns predicted by the CAPM. If the actual returns are higher than the predicted returns, the Jensen's measure is positive, indicating that the portfolio or investment has outperformed the market. Conversely, if the actual returns are lower than the predicted returns, the Jensen's measure is negative, indicating underperformance. Therefore, the Jensen's measure provides an absolute measure of the portfolio's or investment's performance, taking into account the risk as measured by the CAPM.

Choice A is incorrect. Jensen's measure is not a measure of return per unit of risk as measured by standard deviation. This description fits more with the Sharpe ratio, which measures excess return per unit of total risk (standard deviation).

Choice C is incorrect. Jensen's alpha does not measure return per unit of systematic risk (beta). This description aligns more with the Treynor ratio, which measures excess return per unit of systematic risk.

Choice D is incorrect. As explained above, Jensen's alpha does not fit the descriptions provided in both options B and C.

Things to Remember

• The Capital Asset Pricing Model (CAPM) is a widely-used model in finance that describes the relationship between systematic risk and expected return for assets, particularly stocks.
• Systematic risk, also known as market risk, is the risk that is inherent to the entire market or an entire market segment.
• Jensen's alpha is a measure of the excess return of a portfolio or investment over the return predicted by the CAPM.
• The Sharpe ratio measures the excess return per unit of total risk (standard deviation).
• The Treynor ratio measures the excess return per unit of systematic risk (beta).