11.2 Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart. Suppose this is the only information you have concerning the factors.

a. What is the systematic risk of the stock return?

b. Suppose unexpected bad news about the firm was announced that dampens the returns by 2.6 percentage points. What is the unsystematic risk of the stock return?

c. Suppose the expected return of the stock is 9.5 percent. What is the total return on this stock?

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Beta of Expected Actual Factor Factor Value Value GNP 0.0042 $4,416 $4,480 Inflation -1.40 3.1% 4.3% Interest rate -0.67 9.5% 11.8%