(Expected rate of return using CAPM)

a.Compute the expected rate of return for Intel common stock, which has a

1.4

beta. The risk-free rate is

4

percent and the market portfolio (composed of New York Stock Exchange stocks) has an expected return of

12

percent.

b.Why is the rate you computed the expected rate?

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Part 1

a.The expected rate of return for Intel common stock is

enter your response here%.

(Round to one decimal place.)

Part 2

b.Why is the rate you computed the expected rate?

The rate is fair and expected because the CAPM provides a theory of how risk and expected return are connected or traded off in the capital markets.

False

True

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