The Table Below Provides Factor Risk Sensitivities and Factor Risk

question 17

Multiple Choice

The table below provides factor risk sensitivities and factor risk premia for a three factor model for a particular asset where factor 1 is MP the growth rate in U.S.industrial production,factor 2 is UI the difference between actual and expected inflation,and factor 3 is UPR the unanticipated change in bond credit spread.
$\begin{array}{lcc}\text { Risk Factor } & \text { Factor Sensitivity }(\beta) & \text { Risk Premium( } \lambda) \\\hline \text { MP } & 1.76 & 0.0259 \\\text { UI } & -0.8 & -0.0432 \\\text { UPR } & 0.87 & 0.0 140\end{array}$

Calculate the expected excess return for the asset.

• A) 12.32%
• B) 9.32%
• C) 4.56%
• D) 6.32%
• E) 8.02%

---

Definitions:

Cognitive Development

The process by which individuals perceive, think, and gain understanding of their world through the interaction of genetic and learned factors.

Middle Childhood

A developmental stage that generally includes children from 6 to 12 years old, focusing on the growth of cognitive, social, and emotional skills.

Home-Schooled

An educational approach where children are instructed at home by parents or tutors, rather than in traditional public or private school settings.

United States

A country located primarily in North America, comprising 50 states, a federal district, five major self-governing territories, and various possessions.