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 chart: a.

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:

a. What is the systematic risk of the stock return?

b. Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.1 percent. If the expected return on the stock is 12.8 percent, what is the total return on this stock?

Factor Expected Value Actual Value GDP Inflation Interest rates 006821 -.90 -.32 $14,011 $13,982 2.80% 4.80% 2.6% 4.6%

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