13/17 Practice Problem Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums 12 ADMN3700 Topic 4 Factor Risk Premium of a factor portfolio (%) Industrial Production (I) Interest rates (R) Consumer confidence (C) 4 The return on a particular well-diversified portfolio is generated according to the following equation rp=15%+1.0/+0.5R+0.75C where I, R and Care unanticipated components in Industrial Production, Interest rates and Consumer confidence, respectively. The T-bill rate is 6% 6. Interest rates (R) Consumer confidence (C) 4. The return on a particular well-diversified portfolio is generated according to the following equation rp =15%+1.01+0.5R+0.75C where I, R and C are unanticipated components in Industrial Production, Interest rates and Consumer confidence, respectively. The T-bill rate is 6% 1. Find the efficient rate of return of this portfolio using the APT. 2. is the stock over- or under- priced? Explain