Research Has Identified Two Systematic Factors That Affect U

question 18

Multiple Choice

Research has identified two systematic factors that affect U.S.stock returns.The factors are growth in industrial production and changes in long term interest rates.Industrial production growth is expected to be 3% and long term interest rates are expected to increase by 1%.You are analyzing a stock is that has a beta of 1.2 on the industrial production factor and 0.5 on the interest rate factor.It currently has an expected return of 12%.However,if industrial production actually grows 5% and interest rates drop 2% what is your best guess of the stock's return?

• A) 15.9%
• B) 12.9%
• C) 13.2%
• D) 12.0%

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Definitions:

Multi-axle Vehicle

Multi-axle vehicle is a term for vehicles equipped with more than the standard two axles, providing additional support for heavy loads or improving maneuverability.

Thrustline

Vehicle directional tracking line. Properly set axles should track perpendicular to the vehicle centerline. In other words, the rear wheels should track directly behind the front wheels when the vehicle is moving straight ahead, resulting in a directionally true thrust line. If this were not the case, some dog-tracking tendency would result.

Hard Steering

A condition where the steering of a vehicle becomes difficult, often due to low power steering fluid, malfunctions in the steering system, or tire issues.

Highway Tractor

A type of truck designed primarily for the transportation of goods over long distances on highways.