Question: As a security analyst for the Amsterdam branch of EASDAQ (a pan European stock exchange focused on high growth companies with international aspirations), you have

As a security analyst for the Amsterdam branch of EASDAQ (a pan European stock exchange focused on high growth companies with international aspirations), you have identified the following model for Global Graphics: E[r] =  + Z FZ + D FD. Global's expected euro return if all factors are equal to their expectation is  = 8%. Factors and factor sensitivities in euros are
Factor Beta
Fz: firm size factor
βz = + 0.20
FD: relative financial distress βD = + 0.30
a. What is Global's expected return in a year when each factor is 10 percent higher than its expectation?
b. If Global's stock price rises by 10 percent during this period, by how much does Global over-or underperform its expectation given each factor was 10 percent higher than its expectation?

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