Schweser Book 5 p 209, Example *********************************** It appears to me that the calculation of alpha is wrong (or misleading) in this example. Alpha=Actual Return - Expected Return where Expected Return = RFR + Beta(Expected Market Rtn - RFR) When I went to calculate alpha I first looked for the risk free rate (which I found as 3%) and then the EXPECTED market return. I couldn’t find this anywhere. Because they gave the alpha, and beta and risk free rate, I backed into the EXPECTED return on the market portfolio. It happens to be the exact same number as the ACTUAL return on the market (7.6%). I verified this for multiple funds. Is this just a slip up or am I doing something wrong? Thanks!
dude, market index = market return. what’s the problem, column 5 is market portfolio and alpha obviously will be 0.
You are not reading my questions correctly (or it isn’t explained very well). Look at the calc for Fund 1 6.45 - 7.05 = -0.60 How did they get the 7.05? You have to have the RFR+Beta(EXPECTED MARKET RTN-RFR) Where is the expected return given? Edit: In other words, the ex post market return is given, but we need the ex ante return to calculate jensen alpha
7.048 = 3 + .88 * (7.6 - 3) dude, i think you should go to bed, right now. 
That is my point lxwqh. You are using the actual return on the market when you should be using the expected.
Ok, what’s the E(Rm) ? How do you measure it? I think the market index is the return of a proxy market portfolio. I think it’s totally okay to use the actually return of the market here.
Okay. I just wanted to make sure I wasn’t make a stupid mistake (on something as easy as alpha) that I was going to cement into my little brain.