NISM Certifications · NISM-Series-X-A: Investment Adviser (Level 1) · Portfolio Performance Measurement and Evaluation
Mr. Iyer's portfolio returned 15% in a year. The risk-free rate was 7%, the portfolio's beta was 1.2, and the market return was 12%. What is Jensen's alpha for the portfolio?
This item is flawed.
- A-1.0%
- B+1.0%Correct
- C+3.0%
- D+8.0%
Explanation
Expected return by CAPM = 7% + 1.2 x (12% - 7%) = 7% + 6% = 13%. Alpha = 15% - 13% = +2%... check: 1.2 x 5% = 6%, so expected is 13% and alpha is +2%.
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