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 11 0% According to the capital asset pricing model What is the expected return on the market portfolio? Expected rate of return What would be the expected return on a zero-beta stock? Expected rate of return Suppose you consider buying a share of stock at a price of $110 the stock is expected to pay a dividend of $10 next year and to sell then for $113 the stock risk has been evaluated at beta = -0.5. Using the SML. Calculate the fair rate of return for a stock with a beta = -0.5. Fair rate of return Calculate the expected rate of return, using the expected price and dividend for next year. Expected rate of return Is the stock overpriced or underpriced? Underpriced Overpriced