Compute the expected rate of return for Intel common stock, which has a 1.4 beta. The risk-free rate is 3 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 14 percent. b. Why is the rate you computed the expected rate?

Question

Business

Memphis Ward

2 November, 14:58

Compute the expected rate of return for Intel common stock, which has a 1.4 beta. The risk-free rate is 3 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 14 percent. b. Why is the rate you computed the expected rate?

+2

Answers (1)

Know the Answer?

Moses Holder · Answer 1

The expected return is 17.3%

Explanation:

Capital asset pricing model measure the expected return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.

Formula for CAPM

Expected return = Risk free rate + beta (market return - risk free rate)

Expected return = 3% + 1.4 (14% - 3%)

Expected return = 3% + 1.4 (11%)

Expected return = 3% + 14.3%

Expected return = 17.3%