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

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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)

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%

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%

Portfolio beta:

= 1.72*60%+0.78*40%

= 1.344

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.)