Consider the following multifactor (APT) model of security returns for a particular stock.

Factor Factor Beta Factor Risk Premium Inflation 1.2 6%

Industrial production 0.5 8 Oil prices 0.3 3

a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced.

b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out as given in column? 

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