Check my wor Problem 13-20 Jensen\'s Alpha (LO1, CFA7) have been given the follo
ID: 2795405 • Letter: C
Question
Check my wor Problem 13-20 Jensen's Alpha (LO1, CFA7) have been given the following return information for a mutual fund, the market index, and the risk-free rate. You also know that the return correlation between the fund and the market is 0.93. 1% 2011-20.00% 2012 2013 2014 2015-2.04 25.10 13.80 7.40 -38.50% 20.90 13.60 8.40 -4.20 Calculate Jensen's alpha for the fund, as well as its information ratio. (Do not round intermediate calculations percent rounded to 2 decimal places. Round the ratio to 4 decimal places.)Explanation / Answer
Calculation of standard deviation of fund (1)=Returns (2)=Return-Average return (2)*(2) 2011 -20 -24.852 617.6219 2012 25.1 20.248 409.9815 2013 13.8 8.948 80.0667 2014 7.4 2.548 6.492304 2015 -2.04 -6.892 47.49966 24.26 1161.662 Average return 4.852 Standard deviation of fund=Square root of 1161.662/5 Standard deviation=15.24% Calculation of standard deviation of Market (1)=Returns (2)=Return-Average return (2)*(2) 2011 -38.508 -38.5464 1485.825 2012 20.9 20.8616 435.2064 2013 13.6 13.5616 183.917 2014 8.4 8.3616 69.91635 2015 -4.2 -4.2384 17.96403 0.192 2192.829 Average return 0.0384 Standard deviation of market=Square root of 2192.829/5 20.94% Average risk fre rate 1.8+4+2+6+2/5 3.16 Calculation of beta Beta=(standard devaation of fund/Standard deviation of market)*Corelation coefficient 0.727793696 0.676848138 Beta=0.68 Calculation of Information ratio Information ratio=Rp-Rf/Standard deviation of Fund 0.110892388 11.09% Calculation of jensons alfa =Expected return-Rf+Beta(Rm-Rf) =4.85-3.16+0.68(0.04-3.16) Alpha=3.81