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  3. 21. suppose the rate of return on short-term gover

21. Suppose the rate of return on short-term government securities (perceived to be risk-free) is...

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Accounting

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21. Suppose the rate of return on short-term government securities (perceived to be risk-free) is about 5%. Suppose also that the expected rate of return required by the market for a portfolio with a beta of 1 is 12%. According to the capital asset pricing model: a. What is the expected rate of return on the market portfolio? What would be the expected rate of return on a stock with = 0? c. Suppose you consider buying a share of stock at $40. The stock is expected to pay $3 divi dends next year and you expect it to sell then for $41. The stock risk has been evaluated a =-5. Is the stock overpriced or underpriced

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