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The Jensen alpha of a portfolio is computed as:
APortfolio return minus risk-free return
BPortfolio return divided by portfolio beta
CPortfolio return minus CAPM-predicted return
DExcess return divided by tracking error
Answer & Solution
Correct answer: C. Portfolio return minus CAPM-predicted return
1. Identify what the question asks: this concept maps to jensenalpha (§11).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (C).
_Source: ICAI BoS CA Final Paper 2, Ch 6 "Portfolio Management"_
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