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 $10\mathrm{.}0\%.$ According to the capital asset pricing model:

a$.$ What is the expected return on the market portfolio? $($Enter your answer as a

percentage rounded to $1$ decimal places.$)$

Expected rate of

return

b$.$ What would be the expected return on a zero$-$beta stock? $($Enter your answer as a

percentage rounded to $1$ decimal places.$)$

Expected rate of

return

Suppose you consider buying a share of stock at a price of $$30.$ The stock is expected

to pay a dividend of $$7$ next year and to sell then for $$31.$ The stock risk has been

evaluated at $=0\mathrm{.}5.$

c$-1.$ Using the SML$,$ calculate the fair rate of return for a stock with a $=0\mathrm{.}5.($Negative

value should be indicated by a minus sign. Enter your answer as a percentage

rounded to $2$ decimal places.$)$

Fair rate of return

c$-2.$ Calculate your expected rate of return for the stock with a $=0\mathrm{.}5,$ using the

expected price and dividend for next year. $($Enter your answer as a percentage

rounded to $2$ decimal places.$)$

Expected rate of

return