) 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 Suppose this is the only information you have concerning the factors Factor Beta of factor Expected value Actual value GNP 0 042 4,416 4,480 Inflation 1 40 3 1 4 3 Interest Rate 0 67 9 5 11 8 Unexpected bad news about the firm dampens returns by 2 6 The expected return of the stock is 9 5 What is the total return on this stock

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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

) 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. Suppose this is the only information you have concerning the factors:

Factor:	Beta of factor:	Expected value:	Actual value:
GNP	0.042	4,416	4,480
Inflation	-1.40	3.1%	4.3%
Interest Rate	-0.67	9.5%	11.8%

Unexpected bad news about the firm dampens returns by 2.6%.

The expected return of the stock is 9.5%.

What is the total return on this stock?

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