6. (Jensen's alpha) The risk-free rate is 2%. You observe two fund managers (A and B)...
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6. (Jensen's alpha) The risk-free rate is 2%. You observe two fund managers (A and B) and the market portfolio. 1 2 Risk-free return A JENSEN'S 9 Jensen's alpha ALPHA "Normative return" (based on the SML) B 2% 3 Mutual fund A B 4 Mean return 7% 20% 5 Standard deviation 25% 72% 6 Correlation coefficient with the market (Pm) 0.36 0.5 7 Beta C D Market portfolio 10% 18% 1 a. Calculate the beta of each stock and the market portfolio. b. Calculate the "Normative return" based on the SML for each stock and the market portfolio. c. Calculate Jensen's alpha for each stock and the market portfolio. 6. (Jensen's alpha) The risk-free rate is 2%. You observe two fund managers (A and B) and the market portfolio. 1 2 Risk-free return A JENSEN'S 9 Jensen's alpha ALPHA "Normative return" (based on the SML) B 2% 3 Mutual fund A B 4 Mean return 7% 20% 5 Standard deviation 25% 72% 6 Correlation coefficient with the market (Pm) 0.36 0.5 7 Beta C D Market portfolio 10% 18% 1 a. Calculate the beta of each stock and the market portfolio. b. Calculate the "Normative return" based on the SML for each stock and the market portfolio. c. Calculate Jensen's alpha for each stock and the market portfolio.
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Answer rating: 100% (QA)
To calculate Jensens alpha we first need to calculate the beta of each stock and the market portfolio Then we can calculate the Normative return based on the Security Market Line SML Finally we can ca... View the full answer
Related Book For
Investment Analysis and Portfolio Management
ISBN: 978-0538482387
10th Edition
Authors: Frank K. Reilly, Keith C. Brown
Posted Date:
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