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24 May, 22:50

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

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  1. 24 May, 23:03
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    13.432%

    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%
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