Suppose Intel stock has a beta of 1.6, whereas Boeing stock has a beta of 1. If the risk-free interest rate is 4% and the expected return of the market portfolio is 10%, according to the CAPM, a. What is the expected return of Intel stock? b. What is the expected return of Boeing stock? Stock Price/Share ($) Number of Shares Outstanding (millions) Golden Seas 13 1.00 Jacobs and Jacobs 22 1.25 MAG 43 30 PDJB 5 10 M12_BERK5561_04_SE_C12.indd 400 12/10/16 12:03 AM Chapter 12 Systematic Risk and the Equity Risk Premium 401 c. What is the beta of a portfolio that consists of 60% Intel stock and 40% Boeing stock? d. What is the expected return of a portfolio that consists of 60% Intel stock and 40% Boeing stock? (Show both ways to solve this.)
