Exhibit 93
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks

question 10

Short Answer

Exhibit 9.3
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return ( $\lambda$ ₀) = .025 and the risk premiums for the two factors are ( $\lambda$ ₁) = .12 and ( $\lambda$ ₀) = .10. $$\begin{array} { c c c } \text { Stock } & \text { Factor } 1 b _ { i 1 } & \text { Factor } 2 b _ { i 2 } \\\hline \text { A } & - 0.25 & 1.1 \\\text { B } & - 0.05 & 0.9 \\\text { C } & 0.01 & 0.6\end{array}$$
-Refer to Exhibit 9.3. Assume that stocks A, B, and C never pay dividends and stocks A, B, and C are currently trading at $10, $20, and $30, respectively. What is the expected price next year for each stock? $\begin{array}{llll}&A&B&C\\\text { a. } & \$ 10.82 & \$ 21.82 & \$ 30.99 \\\text { b. } & \$ 11.05 & \$ 22.18 & \$ 30.96 \\\text { c. } & \$ 11.32 & \$ 22.56 & \$ 30.99 \\\text { d. } & \$ 11.65 & \$ 22.42 & \$ 30.96 \\\text { e. } & \$ 18.50 & \$ 37.00 & \$ 48.30\end{array}$

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Definitions:

Mixed Cost

A cost consisting both of variable and fixed components, which changes in total in response to changes in activity level but not necessarily in direct proportion.

Least-squares Regression

A method in statistics for finding the optimal line of fit by minimizing the sum of the squared deviations between real and estimated values.

Maintenance Cost

The expenses incurred to keep machinery, equipment, or buildings in operating condition and repair.

Machine-hours

An indicator of the duration for which equipment is utilized in the manufacturing process, commonly employed for distributing manufacturing overhead costs.