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:

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The process of evaluating and choosing among alternatives in a manner consistent with ethical principles and values.

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A company that provides cloud-based software as a service to manage human resources, focusing on benefits and payroll.