Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 6%. Suppose also that the ex
pected rate of return required by the market for a portfolio with a beta of 1 is 16%. According to the capital asset pricing model: A. What is the expected return on the market portfolio?
B. What would be the expected return on a zero-beta stock?
C. The stock risk has been evaluated at beta = -.5. Is the stock overpriced or under-priced?
Note: To determine if a stock overpriced or under-priced, we make use of an example here by assuming buying a share of stock at $40 which is expected to pay $3 dividends next year and it is expected to sold then for $41.
Demand refers to how much (quantity) of a product or service is desired by buyers. The quantity demanded is the amount of a product people are willing to buy at a certain price; the relationship between price and quantity demanded is known as the demand relationship. Supply represents how much the market can offer.
e. only high-quality cars will be sold at a price of $7,000
Based on the information given only cars that are of high-quality will be sold at the amount of $7,000 in the market reason been that we were told that Buyers of low-quality cars value them at the amount of $1,500,$2,500 and $6,000, while high-quality cars on the other hand are been value at the amount of $7,000 because they are of high quality compare to the low quality car which are value at a different price and are sold at a lesser amount.
Therefore In this market only high-quality cars will be sold at the amount of $7,000.