Compute the expected rate of return for Intel common stock, which has a 1.4 beta. The risk-free rate is 3 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 14 percent. b. Why is the rate you computed the expected rate?

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Business

Jamarion Johnston

Today, 05:17

Compute the expected rate of return for Intel common stock, which has a 1.4 beta. The risk-free rate is 3 percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of 14 percent. b. Why is the rate you computed the expected rate?

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Jags · Answer 1

The expected return is 17.3%

Explanation:

Capital asset pricing model measure the expected return on an asset or investment. it is used to make decision for addition of specific investment in a well diversified portfolio.

Formula for CAPM

Expected return = Risk free rate + beta (market return - risk free rate)

Expected return = 3% + 1.4 (14% - 3%)

Expected return = 3% + 1.4 (11%)

Expected return = 3% + 14.3%

Expected return = 17.3%