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1 July, 00:51

Suppose intel stock has a beta of 1.64 , whereas boeing stock has a beta of 0.94. if the risk-free interest rate is 4.6 % and the expected return of the market portfolio is 13.9 % , according to the 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 that consists of 60 % intel stock and 40 % boeing stock?

d. what is the expected return of a portfolio that consists of 60 % intel stock and 40 % boeing stock? (there are two ways to solve this.)

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  1. 1 July, 03:43
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    a. Expected Return of Intel Stock = Risk Free Rate (Rf) + Beta of Intel * (Expected Return on Market - Risk Free Rate)

    Expected Return of Intel Stock = 4.6% + 1.64 * (13.90% - 4.60%)

    Expected Return of Intel Stock = 19.85%

    b. Expected Return of Boeing Stock = 4.6% + 0.94 * (13.90% - 4.60%)

    = 13.34%

    c. Beta of the portfolio = Bet of Intel Stock * 60% + Beta of Boeing Stock * 40%

    = 1.64 * 0.6 + 0.94 * 0.4

    = 1.36

    Beta of a portfolio = 1.36

    d. Expected Return on a portfolio = Rf + beta of portfolio * (Rm - Rf)

    = 4.6% + 1.36 * (13.90% - 4.60%)

    = 17.248%
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