Suppose That We Have Identified Three Important Systematic Risk Factors $\beta$

question 34

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 turns out to be 1%, -2%, and 2%. The factor betas are given by $\beta$ _EX = 1.8, $\beta$ _I = 0.7, and $\beta$ _IP = 1.0. Calculate the stock's total return if the company announces that they had an industrial accident and the operating facilities will close down for some time thus resulting in a loss by the company of 7% in return. Assume expected return on the stock is 6%.

• A) -4.05%
• B) -2.05%
• C) 4.55%
• D) 0.40%
• E) 1.85%

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Definitions:

WAIS-III

The third edition of the Wechsler Adult Intelligence Scale, a psychological test designed to measure cognitive ability in adults.

Intelligence

The ability to learn, understand, and apply information, solve problems, and adapt to new situations.

Correlation Coefficient

A statistical measure that calculates the degree to which two variables move in relation to each other.

Reliability

The consistency and dependability of a measure, test, or system in producing similar results under consistent conditions.