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Suppose Intel stock has a beta of 1.72, whereas Boeing stock has a beta of 0.99. If the risk-free interest rate is 3.5% and the expected return of the market portfolio is 12.5%, according to the CAPM, What is the expected return of Intel stock?  Expected return of stock = .1898 = 19%; Expected return of Intel stock is > the market return of 12.5% since Intel Beta is greater than 1 What is the expected return of Boeing stock?  Expected return of stock = .1241 = 12%; Expected return of Boeing stock is < market return of 12.5% since Boeing Beta is less than 1 What is the beta of a portfolio that consists of 65% Intel stock and 35% Boeing stock?  Find the Beta of the portfolio: Beta Portfolio Formula = Weight*Beta + Weight*Beta Beta Portfolio Formula = (.65)(1.72) + (.35)(0.99) 118 + .3465 Portfolio Beta @ 65% Intel and 35% Boeing = 1.4645 = 1.465 4. What is the expected return of a portfolio that consists of 65% Intel stock and 35% Boeing stock? Find the portfolio expected return Portfolio Expected Return = Risk Free Rate + Portfolio Beta x Market Rate Portfolio Expected Return = 3.5% + 1.465 x 12.5% Portfolio Expected Return = 3.5% + .183125 Portfolio Expected Return =.218125 =21.81%

Suppose Intel stock has a beta of 1.72, whereas Boeing stock has a beta of 0.99. If the risk-free interest rate is 3.5% and the expected return of the market portfolio is 12.5%, according to the CAPM, What is the expected return of Intel stock?  Expected return of stock = .1898 = 19%; Expected return of Intel stock is > the market return of 12.5% since Intel Beta is greater than 1 What is the expected return of Boeing stock?  Expected return of stock = .1241 = 12%; Expected return of Boeing stock is < market return of 12.5% since Boeing Beta is less than 1 What is the beta of a portfolio that consists of 65% Intel stock and 35% Boeing stock?  Find the Beta of the portfolio: Beta Portfolio Formula = Weight*Beta + Weight*Beta Beta Portfolio Formula = (.65)(1.72) + (.35)(0.99) 118 + .3465 Portfolio Beta @ 65% Intel and 35% Boeing = 1.4645 = 1.465 4. What is the expected return of a portfolio that consists of 65% Intel stock and 35% Boeing stock? Find the portfolio expected return Portfolio Expected Return = Risk Free Rate + Portfolio Beta x Market Rate Portfolio Expected Return = 3.5% + 1.465 x 12.5% Portfolio Expected Return = 3.5% + .183125 Portfolio Expected Return =.218125 =21.81%

Essentials Of Investments
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
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Suppose Intel stock has a beta of 1.72, whereas Boeing stock has a beta of 0.99. If the risk-free interest rate is 3.5% and the expected return of the market portfolio is 12.5%, according to the CAPM,

  1. What is the expected return of Intel stock?  Expected return of stock = .1898 = 19%; Expected return of Intel stock is > the market return of 12.5% since Intel Beta is greater than 1
  2. What is the expected return of Boeing stock?  Expected return of stock = .1241 = 12%; Expected return of Boeing stock is < market return of 12.5% since Boeing Beta is less than 1
  3. What is the beta of a portfolio that consists of 65% Intel stock and 35% Boeing stock? 
    • Find the Beta of the portfolio:
    • Beta Portfolio Formula = Weight*Beta + Weight*Beta
    • Beta Portfolio Formula = (.65)(1.72) + (.35)(0.99)
    • 118 + .3465
    • Portfolio Beta @ 65% Intel and 35% Boeing = 1.4645 = 1.465

4. What is the expected return of a portfolio that consists of 65% Intel stock and 35% Boeing stock?

    • Find the portfolio expected return
    • Portfolio Expected Return = Risk Free Rate + Portfolio Beta x Market Rate
    • Portfolio Expected Return = 3.5% + 1.465 x 12.5%
    • Portfolio Expected Return = 3.5% + .183125
    • Portfolio Expected Return =.218125 =21.81%
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