Investments Formula #7 Flashcards
(9 cards)
Identify this formula
αp=rp-[rf+(rm-rf)Bp
Jensen ratio or Alpha
What does the Jensen ratio calculate?
Calculate portfolio return actually attained and subtract from what the return should’ve been based on the risk assumed in the portfolio
What does alpha measure?
The contribution of the portfolio manager
What is the range of alpha?
A positive number signifies that the portfolio’s return exceeded what had been expected a negative number signifies that the portfolios return was less than expected a.k.a. poor management
Do you use alpha formula?
When the question asked you to solve for the portfolio manager’s return
Do you use Alpha when R2 is high or low?
When it is above 60
Do you use whole numbers or or decimals?
Whole numbers
9% should be entered as 9
How will the test try to trip you up with Alpha/Jensen?
Sometimes the exam will give you the market premium, or the stock premium. Be aware!
