You have been asked to analyse the following portfolio of shares. The owner is wondering whether the return received is sufficient to justify the risks associated with each share. The following infromation has been collected for your analysis. The average annual market return is 12% and the risk free rate is 8%.

	Beta	Realised annual rate of return
Red Ltd	1.10	10
Blue Ltd	1.20	20
Green Ltd	0.80	8
Black Ltd	0.90	15

Advise the shareholder on their portfolio specifically answering their question of "whether the return received is sufficient to justify the risks assiciated with each share". Show calculations to support your answer.

The answer shows:

	Beta	Realised annual rate of return	Expected Return
Red Ltd	1.10	10	12.40
Blue Ltd	1.20	20	12.80
Green Ltd	0.80	8	11.20
Black Ltd	0.90	15	11.60

How has the expected return been calculated?