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%

---

Definitions:

External Locus of Control

A psychological concept describing individuals who believe that their successes or failures result from external factors and forces beyond their personal control.

Perceived Benefits Analysis

The evaluation of the advantages or improvements that individuals or organizations anticipate or experience from a product, service, or action.

Social Risk

The fears that consumers suffer when they worry others might not regard their purchases positively.

Performance Risk

Involves the perceived danger inherent in a poorly performing product or service.