CFA CFA Level 1 CFA Level 1 Question of the Week – Portfolio Management

# CFA Level 1 Question of the Week – Portfolio Management

• Author
Posts
• Matt_AnalystPrep
Participant
• CFA Charterholder
1

Two portfolios have the following characteristics:

Portfolio
Return
Beta
A
8%
0.7
B
7%
1.1

Given a market return of 10% and a risk-free rate of 4%, calculate Jensen’s Alpha for both portfolios and comment which portfolio has performed better.

• -0.2% and -3.6% respectively; Portfolio A has performed better than
Portfolio B.
• -0.2% and -3.6% respectively; Portfolio B has performed better than
Portfolio A.
• 0.2% and 3.6% respectively; Portfolio B has performed better than Portfolio
A.
• Matt_AnalystPrep
Participant
• CFA Charterholder
4
dollface said:
Isn’t the question a bit ambiguous when it asks ‘which portfolio has performed better’? From a pure return basis Portfolio A has performed better, but under Jensen’s alpha it might be different.

Performed better according to the Jensen’s Alpha measure  ðŸ™‚

• dollface
Participant
• CFA Level 2
3

Isn’t the question a bit ambiguous when it asks ‘which portfolio has performed better’? From a pure return basis Portfolio A has performed better, but under Jensen’s alpha it might be different.

• itsalwayslupus
Participant
• CFA Level 3
3
Given a market return of 10% and a risk-free rate of 4%, the portfolio with the best performance according to Jensen’s Alpha is most likely:

FTFY

• Matt_AnalystPrep
Participant
• CFA Charterholder
1