Suppose That We Have Identified Three Important Systematic Risk Factors

question 10

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 β_EX = 1.8,β_I = 0.7,and β_IP = 1.0. What would the stock's total return be if the actual growth in each of the factors was equal to growth expected?
Assume no unexpected news on the patent.

• A) 4%
• B) 5%
• C) 6%
• D) 7%
• E) 8%

---

Definitions:

Division

A mathematical operation where a number (the dividend) is divided by another number (the divisor) to produce a quotient.

Dictatorship

A form of government in which power is concentrated in the hands of a single leader or a small group, often without democratic consent.

Composition

The act of forming something by combining parts or elements, or the arrangement and structure of parts in a work of art or piece of writing.

Division

The process of separating or segmenting a whole into smaller parts or sections.