QUESTION 19

1. EXHIBIT 2

   Suppose that three stocks (A, B, and C) and two common risk factors (1 and 2) have the following relationship:

   E(R_A) = (2.6)₁ + (3.4)₂

   E(R_B)=(-0.2)₁ +(2.3)₂

   E(R_C)=(3.1)₁ +(-1.2)₂

   Assume that all three stocks currently sell for $20 and will not pay a dividend in the next year.

   QUESTION 19

   Refer to Exhibit 2. If ₁ = 3.2% and ₂ = 1.7%, the prices expected next year for each of the stocks is:

   	A.	E(Price A) = $17.53, E(Price B) = $19.13, E(Price C) = $17.86
   	B.	E(Price A) = $22.82, E(Price B) = $20.65, E(Price C) = $21.58
   	C.	E(Price A) = $20.64, E(Price B) = $20.34, E(Price C) = $21.73
   	D.	E(Price A) = $17.53, E(Price B) = $19.37, E(Price C) = $18.54
   	E.	None of the above