Suppose the rate of return on short-term government securitles (percelved to be risk-free) Is about 6%. Suppose also that the expected rate of return required by the market for a portfolo with a beta of 1 Is 15%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfollo? (Round your answer to 2 decimal places.) Expected rate of return b. What would be the expected rate of return on a stock with B = 0? (Round your answer to 2 decimal places.) Expected rate of return

Fundamentals of Financial Management (MindTap Course List)
15th Edition
ISBN:9781337395250
Author:Eugene F. Brigham, Joel F. Houston
Publisher:Eugene F. Brigham, Joel F. Houston
Chapter6: Interest Rates
Section: Chapter Questions
Problem 20SP: INTEREST RATE DETERMINATION AND YIELD CURVES a. What effect would each of the following events...
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Problem 9-21
Suppose the rate of return on short-term government securitles (percelved to be risk-free) Is about 6%. Suppose also that the
expected rate of return requlred by the market for a portfolio with a beta of 1 Is 15%. According to the capital asset pricing model:
a. What Is the expected rate of return on the market portfolo? (Round your answer to 2 decimal places.)
Expected rate of return
b. What would be the expected rate of return on a stock with B = 0? (Round your answer to 2 declimal places.)
Expected rate of return
%
c. Suppose you consider buylng a share of stock at $54. The stock Is expected to pay $4 dividends next year and you expect It to sell
then for $56. The stock risk has been evaluated at ß = -.5. Is the stock overpriced or underpriced?
O Underpriced
Overpriced
Transcribed Image Text:Problem 9-21 Suppose the rate of return on short-term government securitles (percelved to be risk-free) Is about 6%. Suppose also that the expected rate of return requlred by the market for a portfolio with a beta of 1 Is 15%. According to the capital asset pricing model: a. What Is the expected rate of return on the market portfolo? (Round your answer to 2 decimal places.) Expected rate of return b. What would be the expected rate of return on a stock with B = 0? (Round your answer to 2 declimal places.) Expected rate of return % c. Suppose you consider buylng a share of stock at $54. The stock Is expected to pay $4 dividends next year and you expect It to sell then for $56. The stock risk has been evaluated at ß = -.5. Is the stock overpriced or underpriced? O Underpriced Overpriced
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