# The risk-free rate is 5% and the expected market risk premiu..

The risk-free rate is 5% and the expected market risk premium is 10%. A portfolio manager is projecting a return of 20% on a portfolio with a beta of 1.5. After adjusting for risk, this portfolio is expected to:（）

tA. equal the market's performance.

tB. outperform the market.

tC. underperform the market.

A

tBased on the CAPM, the portfolio should earn: E(R)=0.05+1.5×0.10=20%. On a risk-adjusted basis, this portfolio lies on the security market line (SML) and thus is earning the proper risk-adjusted rate of return.

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