Question
Answer the questions based on the following information: (1) The expected return required by the market for a portfolio with a beta of 1 is
Answer the questions based on the following information:
(1) The expected return required by the market for a portfolio with a beta of 1 is 14%.
(2) The T-bill's expected rate of return is estimated to be5%.
a. What is the expected rate of return on the market portfolio? (Round your answer to 2 decimal places.)
b. What would be the expected rate of return on a stock with = 0? (Round your answer to 2 decimal places.)
c. Suppose you consider buying a share of stock at $49. The stock is expected to pay $4 dividends next year and you expect it to sell then for $51. The stock risk has been evaluated at = .5. Is the stock overpriced or underpriced?
multiple choice
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Underpriced
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Overpriced
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