Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three

Question:

Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart:

a. What is the systematic risk of the stock return?

b. Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.1 percent. If the expected return on the stock is 12.8 percent, what is the total return on this stock?

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...