Suppose the Risk-Free Return Is 4

question 27

Multiple Choice

Suppose the risk-free return is 4%. The beta of a managed portfolio is 1.2, the alpha is 1%, and the average return is 14%. Based on Jensen's measure of portfolio performance, you would calculate the return on the market portfolio as

• A) 11.5%.
• B) 14%.
• C) 15%.
• D) 16%.

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Definitions:

Net Income

The net income of a business following the deduction of all expenditures and taxes from its total revenue.

Owners' Equity

The residual interest in the assets of a company after deducting liabilities, representing what the owners own outright.

Investment

The process of distributing funds with the goal of earning revenue or gains.

Acid Test Ratio

A financial metric that measures a company's ability to pay off its short-term liabilities with its quick assets.