Question

Parker has a portfolio with a beta of 1.0 and an a porttolio with a beta of 1.0 and an alpha of 0. Based on the CAPM, the return for the portfolio is a. 10% b. Greater than Rm. C. Equal to the Rm. d. Less than Rm but greater than R. ne TOKO Fund earns 11.2% during the year while the risk-free rate is 3.1%. The Yoko Fund has a beta of 1.20 and a standard deviation of 17.5%. The Treynor Ratio is closest to: a. 0.463 b. 0.640 c. 6.750 d. 9.333 The Miracle Whip Fund (MWF) generated a return of 14.2% over the risk-free return of 3.2%. The elevant market premium was 10%. If MWF's beta is 1.3, then what is Jensen's alpha for the fund closest a. -2.0 b. +1.96 c. +1.2 d. +5.2

Answer 1

a)	We know that alpha measures the excess return of the portfolio in comparison to market. In this case, alpha of portfolio is zero whereas the beta is 1 so the portfolio's return would be same as that of the market. The correct answer therefore would be Option C "Equal to the Rm".
b)	Given,
	Return from fund portfolio (Rp)	11.20%
	Risk free rate (Rf)	3.10%
	Beta of fund portfolio	1.20
	Standard deviation of fund portfolio	17.50%
	We know,
	Treynor ratio= (Rp-Rf)/Beta
	(11.20-3.10)/1.20
	6.750
	Answer:- 6.750 (Option C)
c)	Return from fund(Rp)	14.20%
	Risk free rate (Rf)	3.20%
	Market premium (Rm-Rf)	10%
	Beta	1.3
	We know,
	Jenson alpha= Rp-(Rf+Beta*(Rm-Rf))
	14.20-(3.20+1.3*(10))
	-2
	Answer:- -2 (Option A)