The U.S. Treasury bill has a return of 4.75 percent while the S&P 500 is returning 12.8 percent. Your portfolio has an actual raw return of 15.6 percent and a beta of 1.43. What is Jensen's alpha of your portfolio?

The U.S. Treasury bill has a return of 4.75 percent while the S&P 500 is returning 12.8 percent. Your portfolio has an actual raw return of 15.6 percent and a beta of 1.43. What is Jensen's alpha of your portfolio?

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 4P

See similar textbooks

Related questions

Q: The analysts at FNB forecasted that the return on DJIA index portfolio over the coming year will be…

A: The degree of risk aversion of the average investors can be denoted as Beta. Variance of returns…

Q: what is the Sharpe ratio of this portfolio?

A: Information Provided: Return = 25.30% Standard deviation = 31% T-bills = 5%

Q: Based on current dividend yields and expected capital gains, the expected rates or return on…

A: Hence, sharpe ratio of A is 5.71% and is calculated by dividing the difference of anticipated…

Q: 2. An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both…

A: Treynor ratio refers to the risk adjusted return based on the systematic risk or beta.Sharpe ratio…

Q: Stock A has a risk premium of 5.6 percent. If Treasury bills yield 2.3 percent and the expected…

A: The evaluation of the systematic risk or volatility of a stock or the portfolio as compared to the…

Q: The Treasury bill rate at the time of estimation is 15% with a beta of 2.0 and the expected return…

A: The Capital Asset Pricing Model (CAPM): A Capital Asset Pricing Model is the technique of…

Q: 8

A: Expected return and weight: Fremont Enterprise = 15% and 30% weight Laurel Hurst = 20% and 70%…

Q: Your portfolio has a beta of 1.18 and consists of 15 percent U.S. Treasury bills, 40 percent Stock…

A: Portfolio beta (PB) = 1.18 U.S. T bill beta (B1) = 0 (Since risk free) Stock A beta (B2) = 1 (Since…

Q: If you create a portfolio for your client with 73 percent invested in the S&P 500 U.S. stock index…

A: Portfolio return is the weighted average return of the various securities of the portfolio:…

Q: Suppose you owned a portfolio consisting of $250,000 of long-term U.S. government bonds. Would your…

A: Portfolio risk-less: The portfolio is not risk-less. It might be free of liquidity risk and…

Q: We have the following information on a portfolio consisting of Stocks A, B, and C:…

A: Annual expected portfolio return refers to the amount of profit that will be realized from portfolio…

Q: Based on current dividend yields and expected capital gains, the expected rates of return on…

A: The capital asset pricing model (CAPM) refers to the model which tells us how the financial markets…

Q: A portfolio that combines the risk-free asset and the market portfolio has an expected return of 7…

A: A portfolio is a combination or group of financial instruments and securities that are held by an…

Q: Paycheck, Inc. has a beta of 1.19. If the market return is expected to be 13.50 percent and the…

A: Risk Premium: It is the investment return amount assets are expected to yield in excess of the…

Q: An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the…

A: The Treynor measure (T) relates the rate of return earned above the risk‑free rate to the…

Q: Based on current dividend yields and expected capital gains, the expected rates or return on…

A: Capital asset pricing model can be used to study the how systematic risk on a particular asset is…

Q: Your portfolio has a beta of 1.24, a standard deviation of 14.3 percent, and an expected return of…

A: Portfolio beta = 1.24 Standard deviation = 14.3% Expected return = 12.50% Market return = 10.7% Risk…

Q: Currently, the risk free return is 5 percent and the expected market rate of return is 12 percent.…

A: The expected return of portfolio can be calculated with the help of CAPM equation. The beta in the…

Q: The treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: a) Risk free Rate = 6% Market Return = 10%

Q: Returns State of Probability of State of Economy Economy Stock A Stock B Stock C Boom .40 15% 18%…

A: Expected return = weighted average return of the stocks in portfolio Stock A = 35% Stock B = 45%…

Q: Your portfolio consists of Php100,000 invested in a stock that has a beta = 0.8, Php150,000 invested…

A: Market risk premium is required to find the required rate of return. Hence, the market risk premium…

Q: Fremont Enterprises has an expected return of 17% and Laurelhurst News has an expected return of…

A: As the portfolio of an investor comprises of several funds, the expected return for complete…

Q: Consider the following information: the risk-free rate is 2%, and the expected rate of return on the…

A: Risk free rate (Rf) = 2% Market portfolio return (Rm) = 10% Beta = 1.5 We need to find the required…

Q: Security F has an expected return of 10 percent and a standard deviation of 43 percent per year.…

A: Solution- (A)-The expected return of the portfolio is the sum of the weight of each asset timesthe…

Q: You have a portfolio consisting of 20 percent Boeing (beta = 1.3) and 40 percent Hewlett-Packard…

A: The beta of the portfolio is the sum of the product betas and the weights of the individual…

Q: An analyst wants to evaluate Portfolio X, consisting entirely of U.S. common stocks, using both the…

A: Treynor ratio = (Average return - Risk free rate)/Beta Sharpe ratio = (Average return - Risk free…

Q: If the expected rates of return on Portfolio A and B are 11% and 14% respectively and the Beta of A…

A: CAPM or Capital Asset Pricing Model is a model which defines the relationship between expected…

Q: The stock of Big Joe's has a beta of 1.50 and an expected return of 12.60 percent. The risk-free…

A: Given: Beta = 1.50 Expected return = 12.60% Risk free rate = 5.1%

Q: Your portfolio has three asset classes. U.S. government T-bills account for 49% of the portfolio,…

A: Expected Return on the portfolio = Weighted Average Return Weight of US T-bills = 49% Large Company…

Q: Your portfolio consists of the following investment in stock with corresponding beta: · P200,000 in…

A: Weight in stock 1 = [200000 / (200000 + 100000 + 100000)] = 0.5 Weight in stock 2 = [100000 /…

Q: The Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the…

A: 1. Risk premium =expected return on the market - Treasury bill rate Risk premium = 11.1% - 4.9%…

Q: Vega fund had return of 14%, a beta of 0.9, in a standard deviation of 27% last year 20 bills…

A: Ratio is a tool which is used to measure the firm’s performance or growth by establishing a relation…

Q: UPS, a delivery services company, has a beta of 1.6, and Wal-Mart has a beta of 0.9. The risk-free…

A: The beta for entire portfolio is calculated below:

Q: You have recommended a portfolio comprising of 65 percent in a bond index and 35 percent in a stock…

A: Portfolio refers to the collection of all individual securities or investments held by a person or…

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: Since you have asked a question with multiple parts, we will solve the first 3 parts for you. Please…

Q: Consider historical data showing that the average annual rate of return on the S&P 500 portfolio…

A: Expected return means return which investor expect from the investment in portfolio. Variance shows…

Q: Your Company's manager has a $40 million portfolio with a beta of 1.00. The risk-free rate is 4.25%,…

Q: If the risk free rate is 2 96, the expected retun on the market portfolio is 129% and the beta of…

A: Financial statements are statements which states the business activities performed by the company .…

Q: As a portfolio manager for Bank of America Merrill Lynch, you are managing a portfolio of $33.90…

A: The Value at Risk: The value of risk attempts to measure the maximum loss a portfolio can take for a…

Q: Security F has an expected return of 10 percent and a standard deviation of 43 percent per year.…

A: given, rf=10%σf=43%rg=15%σg=62%wf=0.3wg=0.7

Q: f you create a portfolio for your client with 73 percent invested in the S&P 500 U.S. stock index…

A: Portfolio return is the weighted average return of the various securities of the portfolio:…

Q: The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to…

A: Given information: Treasury bill rate is 6% Expected return on market portfolio is 10% Market…

Q: An analyst wants to evaluate Portfolio X consisting entirely of US common stocks, using both the…

A: Sharpe and Treynor ratios are calculated by the investors to determine the relationship between the…

Q: Fremont Enterprises has an expected retun of 15% and Laurelhurst News has an expected return of 20%…

A: Investors have different options to make investments, and the motive behind investments is to…

Q: Currently, the risk-free return is 3 percent, and the expected market rate of return is 9 percent.…

A: Given information: Risk free return is 3% Expected market rate of return is 9%

Q: The Treasury bill rate is 4%, and the expected return on the market portfolio is 14%. According to…

A: Dear Student as per Bartleby's answering guideline we can not answer more than three sub-parts. to…

Concept explainers

Market Efficiency

Market efficiency refers to the market's ability to provide investors with all available information about investment options for buying and selling securities. Market efficiency reflects the true value of securities without undervaluing or overvaluing them. When the quality and quantity of information increase, the market becomes more efficient, allowing it to reduce arbitrage and obtain higher market returns from investment. In a well-functioning market, everyone receives all information completely and immediately at no cost. It opens up a plethora of opportunities for investors to access various investment options.

Question

None

The U.S. Treasury bill has a return of 4.75
percent while the S&P 500 is returning 12.8
percent. Your portfolio has an actual raw
return of 15.6 percent and a beta of 1.43.
What is Jensen's alpha of your portfolio?

Expert Solution

This question has been solved!

Explore an expertly crafted, step-by-step solution for a thorough understanding of key concepts.

SEE SOLUTION Check out a sample Q&A here

Step 1 Given Information

VIEW

Step 2 Solution

VIEW

Step by step

Solved in 2 steps

SEE SOLUTION Check out a sample Q&A here

Knowledge Booster

Learn more about

Need a deep-dive on the concept behind this application? Look no further. Learn more about this topic, finance and related others by exploring similar questions and additional content below.

Similar questions

An analyst has modeled the stock of a company using the Fama-French three-factor model. The market return is 10%, the return on the SMB portfolio (rSMB) is 3.2%, and the return on the HML portfolio (rHML) is 4.8%. If ai = 0, bi = 1.2, ci = 20.4, and di = 1.3, what is the stock’s predicted return?
Your portfolio has had a 15% rate of return with a standard deviation of 18% and a beta of 1.1. The average return for the S&P 500 has been 11%, and the average return for US Treasury bills has been 2%. Calculate the Sharpe ratio, Treynor ratio, and Jensen’s alpha for your portfolio
The Treasury bill rate is 4.9%, and the expected return on the market portfolio is 11.1%. Use the capital asset pricing model. What is the risk premium on the market? (Enter your answer as a percent rounded to 1 decimal place.) What is the required return on an investment with a beta of 1.2? (Enter your answer as a percent rounded to 2 decimal places.) If an investment with a beta of 0.46 offers an expected return of 8.7%, does it have a positive NPV? If the market expects a return of 12.2% from stock X, what is its beta? (Round your answer to 2 decimal places.)
You want to calculate the 30 Day 95% VaR for the following portfolio. You invest $5 million in the NADAQ composite and short $4 million of Bitcoin. The NASDAQ composite has standard deviation of returns of 15% pa; Bitcoin has standard deviation of returns of 20%. The two assets have a correlation of 0.8. Assuming a 250 day year, what is the 30 day VaR?
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11 % and 14 %, respectively. The beta of A is 0.8 % while that of B is 1.5. The T-bill is currently 6 %, while the expected rate of return of the S&P 500 index is 12 %. The standard deviation of portfolio A is 10 % annually, while that of B is 31 % , and that of the index is 20 %: If you currently hold a market index portfolio, would you choose to add either of these portfolios to your holdings? Explain. If instead you could invest only in bills and one of these portfolios, which would you choose, and why? Investor Y, who put K1 in large stocks (the S & P 500 portfolio) on December 31, 1925, and re-invested all dividends in that portfolio, would have ended on December 31, 2003, with K1992.80.
The Treasury bill rate at the time of estimation is 15% with a beta of 2.0 and the expected return on the market is 20%. What is the firm’s required rate of return ?
Based on current dividend yields and expected capital gains, the expected rates or return on portfolios A and B are 12% and 18%, respectively. The beta of A is 0.7 while that of B is 1.6. The T-bill rate is currently 4% while the expected rate of return of the S&P500 Index is 13%. The standard deviation of portfolio A is 14% annually, while that of B is 26%, and that of the index is 15%. If instead you could invest only in bills and one of these porfolios, which would you choose? Use the sharpe ratio to make your desicion.
Based on current dividend yields and expected capital gains, the expected rates or return on portfolios A and B are 12% and 18%, respectively. The beta of A is 0.7 while that of B is 1.6. The T-bill rate is currently 4% while the expected rate of return of the S&P500 Index is 13%. The standard deviation of portfolio A is 14% annually, while that of B is 26%, and that of the index is 15%. If you currently hold a market-index portfolio, would you chose to add either of these portfolios to your holdings?
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 12% and 16%, respectively. The beta of A is .7, while that of B is 1.4. The T-bill rate is currently 5%, whereas the expected rate of return of the S&P 500 index is 13%. The standard deviation of portfolio A is 12% annually, that of B is 31%, and that of the S&P 500 index is 18%.a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.b. If instead you could invest only in T-bills and one of these portfolios, which would you choose?
The Treasury bill rate is 6%, and the expected return on the market portfolio is 10%. According to the capital asset pricing model: a. If the market expects a return of 11.0% from stock X, what is its beta? (Do not round intermediate calculations. Round your answer to 2 decimal places.)
Based on current dividend yields and expected capital gains, the expected rates of return on portfolios A and B are 11% and 14%, respectively. The beta of A is 0.8 while that of B is 1.5. The T-bill rate is currently 6%, while the expected rate of return of the S&P 500 Index is 12%. The standard deviation of portfolio A is 10% annually, while that of B is 31%, and that of the index is 20%. a. If you currently hold a market-index portfolio, would you choose to add either of these portfolios to your holdings? Explain.b. If instead you could invest only in bills and one of these portfolios, which would you choose?
Fremont Enterprises has an expected return of 14% and Laurelhurst News has an expected return of 19%. If you put 44% of your portfolio in Laurelhurst and 56% in Fremont, what is the expected return of your portfolio? The expected return on the portfolio is \%. (Rounded to two decimal places.)