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 βEX = 1.8,βI = 0.7,and βIP = 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.Assume expected return on the stock is 6%.

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

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Definitions:

Mesopotamia

An ancient region located in the eastern Mediterranean, primarily in what is now Iraq, known as the "cradle of civilization" for its early developments in writing, law, and urbanization.

Lowland Maya

Refers to the Maya peoples and cultures of the lowland regions in Mesoamerica, especially noted for their advancements in writing, art, architecture, and astronomy.

Tikal

An ancient Mayan city located in what is now northern Guatemala, known for its towering pyramids and significant archaeological sites.