Question

Suppose Tesla stock has a beta of 2.16 and Walmart stock has a beta of 0.69. If the risk-free rate of return is 4% and the expected return of the market is 10%, what is the expected return of a portfolio that consists of 60% Tesla and 40% Walmart according to the CAPM

Answer 1

13.432%

Step-by-step explanation:

The computation of the expected rate of return using the CAPM model is shown below:

Expected rate of return = Risk-free rate of return + Beta × (Market rate of return - Risk-free rate of return)

where ,

Beta is

= 2.16 × 0.60 + 0.69 × 0.40

= 1.296 + 0.276

= 1.572

Now placing the other items values

So,

= 4% + 1.572 × (10% - 4)

= 4% + 1.572 × 6%

= 4% + 9.432%

= 13.432%