Last year, a portfolio manager earned a return of 12%. The portfolio's beta was 1.5. For the same period, the market return was 7.5% and the average risk-free rate was 2.7%. Jensen's alpha for this portfolio is closest to:
B is correct. Jensen's alpha = 0.12 - [0.027 + 1.5(0.075 - 0.027)] = 0.021 or 2.10%.