You have three stocks – say, stock A, B, and C - with betas 1.2, 1.0, and 0.8 each. Suppose you invested last year as much as 0.5, 0.3, and 0.2 of your wealth in each stock, and earned 18% from the portfolio. Suppose also that the market return is 12%, and the risk free return is 4%. Answer the following questions.
(1) Find the portfolio’s beta.
(2) Find the portfolio’s risk premium.
(3) Find Treynor ratio and interpret it.
(4) Find Jensen’s alpha and interpret it.