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%