compute jensen's alpha

CFA Level III
#1

An analyst has gathered the following information about the performance of an equity fund and the S&P 500 index over the same time period. Using Jensen’s Alpha to measure the risk/return performance of the Equity fund and the S&P 500, which of the following conclusions is CORRECT?

Â

Equity Fund

S&P 500

Return

23%

27%

Standard Deviation

15%

19%

Beta

1.09

1.00

Risk-free rate is 3.50%

Â

Â

A.the equity fund underperformed the S&P 500 by 6.12%

B. The S&P 500 underperformed the equity fund by 2.67%.

C. The S&P 500 outperformed the equity fund by 3.24%.

#2

A

#3

C?

#4

answer is A, could someone put down the calculation pls

#5

The market risk premium is 27% – 3.5% = 23.5%. The expected return on the equity fund is:

3.5% + 1.09(23.5%) = 29.115%

Jensen’s alpha is:

23% – 29.115% = -6.115%

The answer’s A.