Suppose the yield on short-term government securities (perceived to be risk-free) is about 6%. Suppose also that the expected return required by the market for a portfolio with a bets of 1.0 is 12.0%. According to the capital asset pricing model: Required: a. What is the expected return on the market portfolio? (Round your answer to 1 decimal place.) b. What would be the expected return on a zero-bets stock? Suppose you consider buying a share of stock at a price of $85. The stock is expected to pay a dividend of $11 next year and to sell then for $88. The stock risk has been evaluated at B = -0.5 c-1. Using the SML, calculate the fair rate of return for a stock with a B=-0.5. (Round your answer to 1 decimal place.)
c-2. Calculate the expected rate of return, using the expected price and dividend for next year. c-3. Is the stock overpriced or underpriced?