Suppose the rate of return on short-term government securities (perceived to be risk-free) is about...
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Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 8%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 13%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfolio? (Round your answer to 2 decimal places.) b. What would be the expected rate of return on a stock with =0 ? (Round your answer to 2 decimal places.) c. Suppose you consider buying a share of stock at $48. The stock is expected to pay $2.5 dividends next year and you expect it to sell then for $50. The stock risk has been evaluated at =.5. Is the stock overpriced or underpriced? Overpriced Underpriced
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