Suppose That We Have Identified Three Important Systematic Risk Factors

question 15

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 turn out to be 1%,-2%,and 2%.The factor betas are given by b_EX = 1.8,b_I = 0.7,and b_IP = 1.0.Calculate the equity's total return if the company announces that they had an industrial accident and the operating facilities will closed down for some time thus resulting in a loss by the company of 7% in return.

• A)-4.05%
• B)-2.05%
• C)4.55%
• D)0.40%
• E)1.85%

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Definitions:

Reciprocity Principle

This is sometimes called the reciprocity norm, or ‘the law of doing unto others what they do to you’. It can refer to an attempt to gain compliance by first doing someone a favour, or to mutual aggression, or to mutual attraction.

Self-Disclosure

The act of revealing personal or private information about oneself to others, which can facilitate intimacy and trust in relationships.

Intimate Knowledge

Deep, often personal understanding of a subject or another individual.

Pre-Operative

Referring to the period or phase before a surgical procedure.