You have the following data on the securities of three firms: If the risk-free rate last year was 3%,and the return on the market was 11%,which firm had the best performance on a risk-adjusted basis?

Question

You have the following data on the securities of three firms:  If the risk-free rate last year was 3%,and the return on the market was 11%,which firm had the best performance on a risk-adjusted basis?

Quizplus · Accepted Answer

Expected return (firm A)= 3% + 0.8(8%)= 9.4% < actual firm A return
Expected return (firm B)= 3% + 1.0(8%)= 11% = actual firm B return
Expected return (firm C)= 3% + 1.2(8%)= 12.6% > actual firm C return
Only firm A beats the market on a risk-adjusted basis.

You Have the Following Data on the Securities of Three