20.3 As a security analyst for the London branch of Merrill Lynch, you have identified the following factors and factor sensitivities for British Petroleum (BP):

E[r] = + ProdFProd + OilFOil + SpotFSpot

Factors and factor sensitivities are as follows:

Factors FProd	Betas Change in world industrial production	Prod = +1.50
FOil FSpot	Change in crude oil prices Change in the exchange rate (s/f) against a basket of foreign currencies f with f with which BP trades	Oil = 0.80 Spot = +0.01

a. All else constant, is BPs share price likely to go up or down with an increase in world industrial production? With an increase in crude oil prices? With an increase in the pound?

b. What is the expected return on BP stock in a year when world industrial production is 2 percent above the expectation, oil prices rise unexpectedly by 10 percent, and the spot rate St/f goes down by 5 percent?

c. If BP stock rises by 4 percent during this period, by how much does BP over- or underperform its expectation?