Business
Business, 20.02.2020 20:33, santileiva123199

Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 5%. Suppose also that
the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset
pricing model:
a. What is the expected rate of return on the market portfolio?
b. What would be the expected rate of return on a stock with β = 0?
c. Suppose you consider buying a share of stock at $40. The stock is expected to pay $3 dividends next year and you
expect it to sell then for $41. The stock risk has been evaluated at β = – .5. Is the stock overpriced or underpriced?

answer
Answers: 1

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