A Portfolio Has an Average Return of 14 Percent, a Standard

question 26

Multiple Choice

A portfolio has an average return of 14 percent, a standard deviation of 27 percent, and a beta of 1.15. The risk-free rate is 4.5 percent, and the expected return of the market is 12 percent. What is Jensen's alpha for the portfolio?

• A) 0.705%
• B) 0.625%
• C) 0.875%
• D) 0.550%
• E) 0.920%

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Definitions:

Cancellation Option

A contract clause that allows a party to terminate the agreement under certain conditions before its natural end.

Lease Payment

Periodic payments made by a lessee to a lessor for the use of an asset.

Net Advantage to Leasing

A financial concept that compares leasing to purchasing, calculating the costs saved or incurred over the lease term.

Equipment Cost

The total expenditure incurred to purchase, install, and make operational a piece of equipment.