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Problem A Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 3%. Suppose also that the expected rate of
Problem A Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 3%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 15%. 1. What is the expected rate of return on the market portfolio? 2. Suppose if you buy stock A now, you have to pay $50 per share. Stock A is expected to pay $1 in dividends next year and you expect that you can sell stock A for $51 per share. Stock A's B = 0.5. Should you buy stock A according to CAPM
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