Explain How to Calculate Jensen's Alpha and the Treynor Ratio

question 40

Essay

Explain how to calculate Jensen's alpha and the Treynor ratio. What does each measure?
If Jensen's alpha is positive for a portfolio, what do you know about the Treynor ratio for the portfolio?

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Definitions:

Producer Surplus

The difference between the amount producers are willing to accept for a good or service versus the amount they actually receive in the market.

Equilibrium Price

The equilibrium price is the price at which the quantity of a good or service demanded equals the quantity supplied, leading to market balance.

Consumer Surplus

The contrast between the full amount consumers are willing to disburse for a product or service and the actual disbursement.

Price Floor

A government-imposed minimum price that can be charged for a good or service, intended to prevent prices from dropping too low.