A Portfolio Has a Beta of 1

question 82

Multiple Choice

A portfolio has a beta of 1.25 and an actual return of 13.0%. The risk-free rate is 4.0% and the market risk premium is 8.2%. What is the value of Jensen's alpha?

• A)−.86
• B)−1.01
• C)−1.14
• D)−1.25
• E)−1.34

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Definitions:

Terminal Value

An estimate of a company's value at the end of a specific period, often used in discounted cash flow analysis to calculate the present value of all future cash flows.

Future Cash Flows

Future cash flows refer to the projected streams of revenue or expenses expected to be generated or incurred by a business or investment over time.

Current Value

The present worth of an asset or company, considering its financial standing, market condition, and other factors influencing its valuation at the current time.

Long-term Future

A period of time that extends beyond the immediate future, focusing on developing strategies or goals that will have an impact in the coming years.