Your 401K portfolio had a return of 14% in 2012 with a standard deviation of 35% and beta of 1.3. The stock market return was 12% with a standard deviation of 25%. The market risk free rate was 2% in 2012.
Using the Sharpe ratio, compare the risk adjusted return of your portfolio to the market return.
Calculate your portfolio’s expected return under CAPM;
Calculate Jensen’s Alpha and explain if your portfolio generated any Jensen’s alpha.