Question

A stock has a return of 16.9 percent, a standard deviation of 11.7 percent, and a beta of 1.50. The risk-free rate is 2.65 percent and the market risk premium is 8.45 percent. What is the Jensen alpha of this stock?

Answer 1

Answer:

1.575%

Explanation:

Given that,

A stock has a return = 16.9 percent,

Standard deviation = 11.7 percent

Beta = 1.50

Risk-free rate = 2.65 percent

market risk premium = 8.45 percent

Jenson' Alpha:

= Expected Return - [Risk Free Rate + (Beta × Market Risk Premium)]

= 16.9 - [2.65 + (1.50 × 8.45)]

= 1.575%

Therefore, the Jensen alpha of this stock is 1.575%.