Question: 

Calculate Jensen's alpha values for stock  A  and  stock  B.  Based  on  the calculated alpha values, discuss the position that you would like to take in each  stock.

Transcribed Image Text:

Assume you observe the following data. All variables are reported on an annualised basis: Stock A Stock B Market Index Risk-free asset Average Return Standard Deviation 10% 15% 11% 5% 9% 26% 18% 0% Beta 0.6 1.8 1.0 0.0 Assume you observe the following data. All variables are reported on an annualised basis: Stock A Stock B Market Index Risk-free asset Average Return Standard Deviation 10% 15% 11% 5% 9% 26% 18% 0% Beta 0.6 1.8 1.0 0.0

Answer rating: 100% (QA)

To calculate Jensens alpha we need to use the following formula Jensens Alpha Average Return RiskFre... View the full answer