Capital Asset Pricing Model

Question 1

assume mike has a diversified portfolio that had an actual return of 16% last year. During the same time, the market yielded 12%. The risk free rate of return for this period was 7% and the beta for Michael’s portfolio was 1.25. Mike wants to know whether or not his portfolio performed well on a risk adjusted basis. Did it?

Answer 1

yes, the required return was 13.25% calculated as follows
.07 + 1.25 (.12-.07)

this is below the actual return of 16% so yes the portfolio performed well on a risk adjusted basis