Question

Suppose the yield on short-term government securities (perceived to be risk-free) is about 4%. suppose also that the expected return required by the market for a portfolio with a beta of 1 is 6.0%. according to the capital asset pricing model:
a. what is the expected return on the market portfolio? (round your answer to 1 decimal place.) expected rate of return %
b. what would be the expected return on a zero-beta stock? expected rate of return % suppose you consider buying a share of stock at a price of $55. the stock is expected to pay a dividend of $6 next year and to sell then for $57. the stock risk has been evaluated at β = –0.5. c-1. using the sml, calculate the fair rate of return for a stock with a β = –0.5. (round your answer to 1 decimal place.) fair rate of return % c-2. calculate the expected rate of return, using the expected price and dividend for next year. (round your answer to 2 decimal places.) expected rate of return % c-3. is the stock overpriced or underpriced? underpriced overpriced

Answer 1

a. what is the expected return on the market portfolio? (round your answer to 1 decimal place.) expected rate of return %

b. what would be the expected return on a zero-beta stock? expected rate of return % suppose you consider buying a share of stock at a price of $55. the stock is expected to pay a dividend of $6 next year and to sell then for $57. the stock risk has been evaluated at β = –0.5. c-1. using the sml, calculate the fair rate of return for a stock with a β = –0.5. (round your answer to 1 decimal place.) fair rate of return % c-2. calculate the expected rate of return, using the expected price and dividend for next year. (round your answer to 2 dec