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5. Suppose that the market can be described by the following three sources of svstematic...

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5. Suppose that the market can be described by the following three sources of svstematic risk. The risk premium of each hedge portfolio is also given Factor Premium Industrial Production 0 0 Interest rates (R) 0 Consumer confidence 4% Regressing stock x's return on the three factors, we have the following equation r 15% + l.OJ + 0.5R + 0.75C + e where e is the residual and I, R, and C' are all demeaned variables(mean i zero). The T-bill rate is 6%. 1) Find the equilibrium rate of return of this stock predicted by APT. 2) Is the stock x over-or underpriced compared to APT? 3) Based on APT, is there an "alpha" term? If yes, compute the alpha

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