Answer the questions based on the following information:
(1) The expected return required by the market for a portfolio
with a beta of 1 is 14%.
(2) The T-bill’s expected rate of return is estimated to
a.What is the expected rate of return on
the market portfolio? (Round your answer to 2 decimal
b.What would be the expected rate of
return on a stock with ß = 0? (Round your answer to 2
c.Suppose you consider buying a share of
stock at $49. The stock is expected to pay $4 dividends next year
and you expect it to sell then for $51. The stock risk has been
evaluated at ß = –.5. Is the stock overpriced or underpriced?