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27 December, 01:18

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?

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  1. 27 December, 01:26
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    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%.
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