Suppose the yield on short term government securities (perceived to be risk free) is about 7 76 Suppose also that the expected return required by the market for a portfolio with a beta of 1 0 is 17 76 According to the capital asset pricing model Required (a) What is the expected return on the market portfolio (Round your answer to 2 decimal places Rate of return (b) What would be the expected return on a zero beta stock (Round your answer to 2 decimal places Omit the sign in your response ) Rate of return (c) Suppose you consider buying a share of stock at a price of $35 The stock is expected to pay a dividend of $7 next year and to sell then for $53 The stock risk has been evaluated at 0 5 Is the stock overpriced or underpriced

The Answer is in the image, click to view ...

Question: Suppose the yield on short-term government securities (perceived to be risk-free) is about 7.76%. Suppose also that the expected return required by the market for

Suppose the yield on short-term government securities (perceived to be risk-free) is about 7.76%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.0 is 17.76%. According to the capital asset pricing model:

Required:
(a)	What is the expected return on the market portfolio? (Round your answer to 2 decimal places. \

Rate of return

(b)

What would be the expected return on a zero-beta stock? (Round your answer to 2 decimal places. Omit the "%" sign in your response.)

Rate of return

(c)

Suppose you consider buying a share of stock at a price of $35. The stock is expected to pay a dividend of $7 next year and to sell then for $53. The stock risk has been evaluated at ? = -0.5. Is the stock overpriced or underpriced?

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

You are researching stock investments. The yield on short-term government securities (perceived to be risk-free) is about 4%. The expected return required by the market for a portfolio with a beta of...

Suppose the yield on short-term government securities (perceived to be risk-free) is about 5%. Suppose also that the expected return required by the market for a portfolio with a beta of 1 is 8.0%....

Please explain question #12. attached document with the document is provided. For problems 12-16, assume that you manage a risky portfolio with an expected rate of return of 17% and a standard...

PLEASE ANSWER #21 #23, #25 WITH EXPLANATION. THANKS 21. A share of stock is now selling for $100. It will pay a dividend of $9 per share at the end of the year. Its beta is 1 . What do investors...

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 7.0%....

Question 4 5 pts Assume that CAPM is valid. A share of stock is now selling for $80. It will pay a dividend of $5 per share at the end of the year. Its beta is 1. What do investors expect the stock...

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 70%....

In January of 2008 Yahoo, Inc., announced through the Reuters news agency and other news outlets that it has embarked on a multiyear transformation that includes making some tough decisions about the...

The Radiology Department provides imaging services for Memorial Medical Center. One important activity in the Radiology Department is transcribing tape-recorded analyses of images into a written...

A vehicle licencing system bills vehicle owners according to the weight of their vehicles. The system uses the following conditions: Below 3 0 0 kg . . . . . . . . . . . . . . . . . . . invalid...

9. (15 points) A company is considering a new project that requires an investment of \$5 million. The project is expected to generate cash flows of $2 million in year 1,$3 million in year 2, and $4...

Visit the Postal Service website (www.usps.com) or your local post office to learn the difference between certified mail and registered mail.Then, address an envelope (or paper cut to the appropriate...

What benefits can be gained from an effective sales appeal in an adjustment message? (Objective 4)

Teamwork. Form teams of three students and design a brochure that could be used to welcome new students to your college.Be prepared to promote your brochure in a class contest. (Objective 5)