Suppose That We Have Identified Three Important Systematic Risk Factors

question 37

Multiple Choice

Suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial production.In the beginning of the year, growth in these three factors is estimated at
-1%, 2.5%, and 3.5% respectively.However, actual growth in these factors turn out to be 1%, -2%, and
2%) The factor betas are given by bEX = 1.8, bI = 0.7, and bIP = 1.0.If the expected return on the
Equity is 6%, and no unexpected news concerning the equity surfaces, calculate the equity's total
Return.

• A)2.95%
• B)4.95%
• C)6.55%
• D)7.40%
• E)8.85%

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Definitions:

Supply Curve

A graphical representation showing the relationship between the price of a good or service and the quantity that suppliers are willing to offer for sale at that price.

Willingness To Pay

The maximum price at which a consumer is prepared to buy a good or service, reflecting the value they place on it.

Full Cost

The total expense associated with producing a good or service, including both fixed and variable costs.

Producer Surplus

The difference between what producers are willing to sell a good for and the actual price they receive, essentially a measure of producer benefit.