As a security analyst for Citicorp based in London, you have identified the following model for Deutsche Bank: E[r] =  + TermFTerm + RiskFRisk + SpotFSpot. Deutsche Bank's expected euro return if all factors equal to their expectation is  = 10%. Factors and factor sensitivities in euros are
Factor Beta
FTerm: long minus short government bonds Term = + 0.08
FRisk: corporate minus government bonds Risk = - 0.10
FSpot: change in the euro value of the dollar Spot = - 0.02
a. What is Deutsche Bank's expected return in a year when each factor is 4 percent higher than its expectation?
b. If Deutsche Bank's stock price rises by 16 percent during this period, by how much does it over- or underperform its expectation given each factor was 4 percent higher than its expectation?