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

• Underpriced

• Overpriced