What is the expected return on the market portfolio

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Reference no: EM13802802

Suppose that the return on short-term government securities (perceived to be risk-free) is 5%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.6 is 18%. According to the capital asset pricing model (CAPM) (a) What is the expected return on the market portfolio? (b) What would be the expected return on a stock with β = 0 (c) Suppose you are considering buying United Airlines stock at $40. The stock is expected to pay a dividend of $3 next year and you expect to be able to sell the stock then for $41. The stock beta is estimated to be β = 0.5. Given the information you found in Part (a) on the expected return of the market and the risk-free rate is United Airlines stock overpriced, underpriced or perfectly priced at $40?

Reference no: EM13802802

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