What is the expected return on the market portfolio

Assignment Help Financial Management

Reference no: EM132067205

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 12%. According to the capital asset pricing model:

a. What is the expected return on the market portfolio?

b. What would be the expected return on a zero-beta stock?

c. Suppose you consider buying a share of stock at a price of $40. The stock is expected to pay a dividend of $3 next year and to sell then for $41. The stock risk has been evaluated at beta =-.5. Is the stock overpriced or underpriced?What is it's alpha?

DO NOT FORGET TO INCLUDE THE FORMULAS ALSO

Reference no: EM132067205

Questions Cloud

Prepare the journal entries for these transactions : Purchased a tract of land in exchange for $8,000 cash down payment, Required: Prepare the journal entries for these transactions

How does margin work in the future contract market : what types of future contracts are there, how does margin work in the future contract market.

Prepare the journal entry to record the exchange : Mike Corporation exchanged land and cash of $6,500 for equipment. Prepare the journal entry to record the exchange

Capital gains and other investment income : The amount of interest, capital gains and other investment income earned by the Bedo household during the year.

What is the expected return on the market portfolio : What is the expected return on the market portfolio? What would be the expected return on a zero-beta stock?

What is the new margin on the account : Megan bought 200 shares of stock at a price of $10 a share. She used her margin account with a 70% initial margin to make the purchase.

Prepare the journal entry to record the purchase of assets : Tony Company purchased assets of Billy Inc. at auction for $1,560,000. Prepare the journal entry to record the purchase of the assets

Relatively more risky when held as single stock portfolio : Which of the following stocks is relatively more risky when held as a single stock portfolio

Explain the concept of market efficiency : Explain the concept of market efficiency and the importance of expectations formation in the assessment of an efficient market?

User Account

All Pages