Problem 7-10 You have been assigned the task of estimating the expected returns for three different stocks: QRS, TUV, and WXY. Your preliminary analysis has established the historical risk premiums associat risk factors that could potentially be included in your calculations: the excess return on a proxy for the market portfolio (MKT), and two variables capturing general macroeconomic exposures (MA MACRO2). These values are: AMKT = 6.7%, AMACRO1 = -0.4%, and AMACRO2 = 0.5%. You have also estimated the following factor betas (1.e., loadings) for all three stocks with respect to each of th risk factors: % % % % Stock QRS TUV WXY a. Calculate expected returns for the three stocks using just the MKT risk factor. Assume a risk-free rate of 4.6%. Round your answers to three decimal places. Expected return for stock QRS: % Expected return for stock TUV: Expected return for stock WXY: b. Calculate the expected returns for the three stocks using all three risk factors and the same 4.6% risk-free rate. Round your answers to three decimal places. Expected return for stock QRS: % Expected return for stock TUV: Expected return for stock WXY: c. What sort of exposure might MACRO2 represent? MACRO2 might represent -Select- factor. MKT 1.15 0.92 1.04 FACTOR LOADING MACRO1 -0.50 0.53 -0.13 MACRO2 0.00 0.17 0.00

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