Emily, an analyst at Fantastique Computers (FC), models the companys stock assuming that the return...
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Finance
Emily, an analyst at Fantastique Computers (FC), models the companys stock assuming that the return earned on all stocks depends on only three risk factors: inflation, industrial production, and the market's aggregate degree of risk aversion. In today's economy, the risk-free rate ( ) is 8%, while the return on the market portfolio ( ) is 15%. Any remaining relevant data is given in the following table:
Variable :
The required rate of return on an inflation portfolio, 13%
The required return on an industrial production portfolio, 10%
The required return on a risk-bearing portfolio, 6%
Factor sensitivity to the inflation portfolio, 0.9
Factor sensitivity to the industrial production portfolio, 1.2 Factor sensitivity to the risk-bearing portfolio, 0.7
FantastiqueComputerss beta, 1.1
Using an APT model, Emily calculates that FCs required rate of return is:
a) 13.50%
b) 13.00%
c) 15.70%
d) 5.50%
If Emily used the Capital Asset Pricing Model, she would have calculated that FCs required rate of return is:
a) 15.70%
b) 0.30%
c) 13.50%
d) -7.70%
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