Superb Professors

Suppose the yield on short-term government securities (perceived to be risk-free) is about 6%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 12.0%. 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 $85. The stock is expected to pay a dividend of $11 next year and to sell then for $88. The stock risk has been evaluated at ? = –.5.c-1.Using the SML, calculate the fair rate of return for a stock with a ? = –0.5. 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?UnderpricedOverpriced

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