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

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Suppose the yield on short-term government securities (perceived to be risk-free) is about 7.76%. Suppose also that the expected return required by the market for a portfolio with a beta of 1.0 is 17.76%. According to the capital asset pricing model:

What is the expected return on the market portfolio?

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

Suppose you consider buying a share of stock at a price of $35. The stock is expected to pay a dividend of $7 next year and to sell then for $53. The stock risk has been evaluated at f = -0.5. Is the stock overpriced or underpriced?

Reference no: EM13334087

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