Shares in Potash Inc. are currently trading for $14.83 per share. Potash paid a dividend on December 31st (yesterday). Today is January 1st. The dividend next year (on December 31st) is expected to be $0.83. You plan to sell your shares after the dividend next year and expect to receive $15.52 when you sell them. Denote the anticipated return on your Potash Shares as R. Potashs beta is 0.78, the expected return on the market is 8.8% and T-Bills are expected to earn 4.1%. What is the Jensens Alpha coefficient for your investment in Potash Inc? (Jensens alpha is just the difference between the anticipated return, R, and the equilibrium expected return, E(R)).

A) 0%

B) *2.5%

C) 6.1%

D) 7.8%

E) 10.3%

Looking for the process work to understand why the solution is B) 2.5%.