a mathxl.com MGMT-326-002 (- Course Home Do Homework ..A At The Beginning... Sup

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a mathxl.com MGMT-326-002 (- Course Home Do Homework ..A At The Beginning... Suppose The Risk Solved: Stocks A a.. At The Beginning MGMT 326-Fundamentals of Corporate Finance- Berk/DeMarzo Gabriel Pacheco &I; 4/1/18 2:41 PM Homework: Chapter 12 Homework Score: 0 of 1 pt P 12-32 (similar to) Save 11 of 15 (6 complete) HW Score: 40%, 6 of 15 pts Question Help * Boeing stock has a beta of .77. If the risk-free interest rate is 32% and the expected et m of the market portfolio Suppose Intel stock has a beta of 1.69, whereas is 10.9%, according to the CAPM, a. What is the expected return of Intel stock? b. What is the expected return of Boeing stock? What is the beta of a portfolio that consists of 70% Intel stock and 30% Boeing stock? n d. What is the expected return of a portfolio that consists of 70% intel stock ang 30% Boeing stock? mere arr wo ways io a. What is the expected return of Intel stock? Intel's expected return is »%. (Round to one decimal place ) Enter your answer in the answer box and then click Check Answer Check Answer Clear All remaining

Explanation / Answer

As per CAPM model:-

A. Expected return of Intel stock=Risk free interest rate+Beta of security(Market rate of return-Risk free rate)

=3.2+1.69(10.9-3.2)

=16.21%

B.Expected return of Boeing Stock=3.2+.77(10.9-3.2)

= 9.129%

C.Portfolio consist of 70% intel stock and 30% Boeing Stock

So,weight of Intel stock in portfolio=.70

weight of Boeing stock in portfolio=.30

So,portfolio beta=stock beta*weight of stock in portfolio

=Intel stock beta*Intel weight in stock+Boeing Stock Beta*Boeing weight in stock

=(1.69*.70)+(0.77*0.30)

=1.414

D.Expected return of portfolio=3.2+1.414(10.9-3.2)

=14.09%

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