Question: Research has identified two systematic factors that affect US stock (share) returns. The factors are growth in industrial production and changes in long term interest

Research has identified two systematic factors that affect US stock (share) returns. The factors are growth in industrial production and changes in long term interest rates. Industrial production growth is expected to be 3% and long term interest rates are expected to increase by 1%. You are analysing a share that has a beta of 1.2 on the industrial production factor and 0.5 on the interest rate factor. It currently has an expected return of 12%. However, if industrial production actually grows 5% and interest rates drop 2% what is your best guess of the share's return?


 

Step by Step Solution

3.33 Rating (144 Votes )

There are 3 Steps involved in it

1 Expert Approved Answer
Step: 1 Unlock

To calculate the best guess of the shares return based on the given scenario we need to consider the ... View full answer

blur-text-image
Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock
Step: 3 Unlock

Document Format (2 attachments)

PDF file Icon

664215c418046_986462.pdf

180 KBs PDF File

Word file Icon

664215c418046_986462.docx

120 KBs Word File

Students Have Also Explored These Related Finance Questions!