Suppose Intel stock has a beta of 1.74, whereas Boeing stock has a beta of 0.9.

Question

Suppose Intel stock has a beta of 1.74, whereas Boeing stock has a beta of 0.9. If the risk-free interest rate is 5.9% and the expected return of the market portfolio is 12.7%, according to the CAPM:

ofthe mar e por i s 27%, according o e A M Suppose Intel stock has a beta o 1 74, whereas Boeing stock has a beta o 09 the risk-free nterest rate is 5.91% an the expected retu 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 65% Intel stock and 35% Boeing stock? d, what is the expected return of a portfolio that consists of 65% Intel stock and 35% Boeing stock? (There are two ways to solve this.) a. What is the expected return of Intel stock? Intel's expected return is %. (Round to one decimal place.) at is the expected return of Boeing stock? Boeing's expected return is 96. (Round to one decimal place.) C. What is the beta of a portfolio that consists of 65% Intel stock and 35% Boeing stock? The portfolio beta is. Round to two decimal places.) d What is the expected return of a portfolio that consists of 65% Intel stock and 35% Boeing stock? There are two way The expected return of the portfolio is %. (Round to one decimal place.) to scive this

Explanation / Answer

Using CAPM, expected returns = Rf + beta x (Rm - Rf)

here, Rf = 5.9%, Rm = 12.7%

a) Intel's return = 5.9% + 1.74 x (12.7% - 5.9%) = 17.73%

b) Boeing's return = 5.9% + 0.9 x (12.7% - 5.9%) = 12.02%

c) Portfolio beta = 65% x 1.74 + 35% x 0.9 = 1.446

d) Portfolio returns = 5.9% + 1.446 x (12.7% - 5.9%) = 15.73%

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