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Business, 25.11.2021 06:10 fatherbamboo

Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 7%. 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?
b. What would be the expected rate of return on a stock with 3 = O?
c. Suppose you consider buying a share of stock at $45. The stock is expected to pay $3 dividends next year and you expect it to sell then for $46. The stock risk has been evaluated at beta = -.5. Is the stock overpriced or underpriced?

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