a)
Using CAPM, we derive required return
return=risk free+ (Beta*Market risk premium)
Market risk premium=Market return-risk free rate
Risk free=4%
Market risk premium=10%-4%=6%
Beta=1.6
Return for Intel=4%+(1.6*6)%=13.6%
b) For Boeing:
return =10% since beta is equal to market portfolio of 1.
c)
Asset | Beta | Weight | Weighted Beta | |
Intel | 1.6 | 60% | 0.96 | (1.66*60%) |
Boeing | 1 | 40% | 0.4 | (1*40%) |
Beta | 1.36 |
d) Return on portfolio = 4%+(1.36*6)%=12.16%
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