As a security analyst for the Amsterdam branch of EASDAQ (a pan European stock exchange focused on

Question:

As a security analyst for the Amsterdam branch of EASDAQ (a pan European stock exchange focused on high growth companies with international aspirations), you have identified the following model for Global Graphics: E[r] =  + Z FZ + D FD. Global's expected euro return if all factors are equal to their expectation is  = 8%. Factors and factor sensitivities in euros are
Factor Beta
Fz: firm size factor
βz = + 0.20
FD: relative financial distress βD = + 0.30
a. What is Global's in a year when each factor is 10 percent higher than its expectation?
b. If Global's stock price rises by 10 percent during this period, by how much does Global over-or underperform its expectation given each factor was 10 percent higher than its expectation?
Expected Return
The expected return is the profit or loss an investor anticipates on an investment that has known or anticipated rates of return (RoR). It is calculated by multiplying potential outcomes by the chances of them occurring and then totaling these...