CMA Final · Strategic Financial Management · Mutual Funds
A fund has an average return of 15%, standard deviation 20% and beta 1.25. The risk-free rate is 6% and the market return is 12%. Using Jensen's alpha, what is the fund's alpha?
Jensen's alpha is actual return minus the CAPM required return. Required return is 6% plus 1.25 times the 6% market premium, giving 13.5%. The fund earned 15%, so alpha is positive 1.5%.
- A1.50%Correct
- B3.00%
- C-1.50%
- D0.00%
Explanation
Required return = 6 + 1.25 × (12 − 6) = 13.5%. Alpha = 15 − 13.5 = 1.5%. Using 1.25×12 would be an error.
Did you get it right without looking?
One question tells you little. A timed set on Mutual Funds shows your real accuracy, how long you take and where you lose marks.
More Mutual Funds questions
- Mr. Iyer invested Rs 1,00,000 in a mutual fund when NAV was Rs 20.00, with an entry load of 2.5% on the NAV. The entry load is charged on th…
- Mr. Iyer invests Rs 60,000 in a fund at NAV Rs 15.00 with an entry load of 2%. After a year the NAV is Rs 18.00 and he redeems all units wit…
- An open-ended fund has an opening NAV of ₹40.00. During the year it paid a dividend of ₹2.00 per unit and the closing NAV was ₹43.00. Ignori…
- A fund's portfolio is worth Rs 108 crore at market value and it holds other net receivables of Rs 4 crore. Liabilities are Rs 2 crore toward…
- Kaveri Equity Fund began the year with NAV of Rs 40.00. During the year it paid a dividend of Rs 2.00 per unit and a capital gains distribut…
- A scheme has an average net asset value of ₹200 crore for the year. It charges expenses of ₹3 crore. Its portfolio purchases were ₹90 crore …