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Category > Business & Finance Posted 21 May 2017 My Price 11.00

Suppose the yield on short-term governme

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 14.0%. 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 ? = "?o.5.

 

c-1.

Using the SML, calculate the fair rate of return for a stock with a ? = "?o0.5. (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.)

 

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


***PLEASE EXPLAIN***

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Status NEW Posted 21 May 2017 07:05 AM My Price 11.00

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