NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
A portfolio returned 12% with a beta of 0.9. The risk-free rate is 6% and the market return is 11%. What is Jensen's alpha?
Jensen's alpha is +1.50%. The CAPM required return is 6% plus 0.9 times the 5% market premium, which is 10.5%. The portfolio earned 12%, so it outperformed the risk-adjusted benchmark by 1.5 percentage points.
- A1.50%Correct
- B0.00%
- C-1.50%
- D6.00%
Explanation
Expected return by CAPM = 6 + 0.9 x (11 - 6) = 6 + 4.5 = 10.5%. Alpha = actual 12% - expected 10.5% = 1.5%. A result of -1.5% reverses the subtraction. Using 12 - 6 = 6% ignores risk adjustment and gives the plain excess return.
Did you get it right without looking?
One question tells you little. A timed set on Portfolio Performance Measurement and Evaluation shows your real accuracy, how long you take and where you lose marks.
More Portfolio Performance Measurement and Evaluation questions
- Ms. Kapoor invested Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000. She then added Rs 30,000 (so the value became Rs 1…
- Mr. Iyer invested Rs 1,00,000 in a fund. At the end of year 1 it was worth Rs 1,20,000. He then added Rs 30,000 at that point, and at the en…
- A portfolio returned 12% while its benchmark returned 9%. The tracking error (standard deviation of active returns) was 4%. What is the info…
- Which statement about the Treynor ratio is correct?
- A portfolio earned 14% in a year when the risk-free rate was 6%. Its standard deviation was 16% and beta was 1.25. What is its Treynor ratio…
- A portfolio manager's portfolio returned 14% in a year. The risk-free rate was 6%, and the portfolio's standard deviation was 16%. What is t…