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The following data are available relating to the performance of Sooner Stock Fund and the market portfolio:

Sooner Market Portfolio
Average return 20% 11%
Standard reviations of returns 44% 19%
Beta 1.8 1.0
Residual standard deviation 2.0% 0.0%

The risk-free return during the sample period was 3%. Calculate the Jensen measure of performance evaluation for Sooner Stock Fund.

Respuesta :

Tundexi

Answer:

2.6%

Explanation:

Jensen Measure is calculated using the below formula

Jensen Alpha = Rp - (Rf + beta*(Rm - Rf))

Where Rp = Return on portfolio = 20%, Rf = risk free rate = 3%, Beta = Beta of portfolio = 1.8 and Rm = Market return = 11%

Jensen Alpha = 20 - (3 + 1.8*(11-3))

Jensen Alpha = 20 - (3 + 1.8*8)

Jensen Alpha = 20 - (3 + 14.4)

Jensen Alpha = 20 - 17.4

Jensen Alpha = 2.6%

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