11. Suppose that the market can be described by the following three sources of systematic risk with...
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11. Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.
Factor Risk Premium Industrial production (I ) 6%
Interest rates (R) 2 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation:
r 15%1.0I .5R.75C e Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Is the stock over- or underpriced? Explain.
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