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MCS,PHD
Argosy University/ Phoniex University/
Nov-2005 - Oct-2011
Professor
Phoniex University
Oct-2001 - Nov-2016
20.  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 1.0 is 12%. 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.  Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluated at f3   -0.5. Is the stock overpriced or underpriced?
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