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Suppose Intel stock has a beta of 1.72?, whereas Boeing stock has a beta of 0.78....

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Finance

Suppose Intel stock has a beta of 1.72?, whereas Boeing stockhas a beta of 0.78. If the? risk-free interest rate is 4.2% and theexpected return of the market portfolio is 13.4%?, according tothe? CAPM,

a. What is the expected return of Intel?stock?

b. What is the expected return of Boeing?stock?

c. What is the beta of a portfolio thatconsists of 60% intel stock and 40% Boeing? stock?

d. What is the expected return of a portfoliothat consists of 60% Intel stock and 40% Boeing? stock? (There aretwo ways to solve? this.)

Answer & Explanation Solved by verified expert
3.8 Ratings (673 Votes)

a)

Expected return Rf+?×Rp
Here,
Risk free rate of return (Rf) 4.2%
Beta of the stock (?)                          1.72
Market risk premium (Rp) 9.2% =13.4%-4.2%
Expected return 20.02%
4.2%+1.72×9.2%

b)

Expected return Rf+?×Rp
Here,
Risk free rate of return (Rf) 4.2%
Beta of the stock (?)                          0.78
Market risk premium (Rp) 9.2% =13.4%-4.2%
Expected return 11.38%
4.2%+0.78×9.2%

c)

Portfolio beta:

= 1.72*60%+0.78*40%

= 1.344

d)

Expected return Rf+?×Rp
Here,
Risk free rate of return (Rf) 4.2%
Beta of the stock (?)                        1.344
Market risk premium (Rp) 9.2% =13.4%-4.2%
Expected return 16.56%
4.2%+1.344×9.2%

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Transcribed Image Text

Suppose Intel stock has a beta of 1.72?, whereas Boeing stockhas a beta of 0.78. If the? risk-free interest rate is 4.2% and theexpected return of the market portfolio is 13.4%?, according tothe? CAPM,a. What is the expected return of Intel?stock?b. What is the expected return of Boeing?stock?c. What is the beta of a portfolio thatconsists of 60% intel stock and 40% Boeing? stock?d. What is the expected return of a portfoliothat consists of 60% Intel stock and 40% Boeing? stock? (There aretwo ways to solve? this.)

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