Question: Suppose you identified three important systematic risk factors given by exports (EX), inflation (I), and industrial production (IP). At the beginning of the year, a
Suppose you identified three important systematic risk factors given by exports (EX), inflation (I), and industrial production (IP). At the beginning of the year, a firm's stock return is estimated at 12.7% and the growth in the three factors is estimated at 0.5 percent, 1.9 percent, and 2 percent, respectively. The factor betas are: EX = 2.9, I = 2.4, and IP = 5.6. What would be the stock's total return if the actual growth in each of the factors was equal to the expected growth and no unexpected company news occurred? A. 12.70% B. 17.50% C. 18.21% D. 13.90% E. 14.15%
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