Consider the following multifactor (APT) model of security returns for a particular stock. ...
70.2K
Verified Solution
Link Copied!
Question
Accounting
Consider the following multifactor (APT) model of security returns for a particular stock.
Factor
Factor Beta
Factor Risk Premium
Inflation
1.6
6%
Industrial production
1.1
7
Oil prices
0.7
2
a.
If T-bills currently offer a 5% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.)
Expected rate of return
%
b.
Suppose that the market expected the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column 2. Calculate the revised expectations for the rate of return on the stock once the "surprises" become known. (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in your response.)
Factor
Expected Rate of Change
Actual Rate of Change
Inflation
8%
7%
Industrial production
7
8
Oil prices
5
0
Expected rate of return
%
Answer & Explanation
Solved by verified expert
Get Answers to Unlimited Questions
Join us to gain access to millions of questions and expert answers. Enjoy exclusive benefits tailored just for you!
Membership Benefits:
Unlimited Question Access with detailed Answers
Zin AI - 3 Million Words
10 Dall-E 3 Images
20 Plot Generations
Conversation with Dialogue Memory
No Ads, Ever!
Access to Our Best AI Platform: Flex AI - Your personal assistant for all your inquiries!
