Answered step by step
Verified Expert Solution
Link Copied!

Question

1 Approved Answer

A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP

image text in transcribed

A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 4.7 percent, and the interest rate is expected to be 4.2 percent. A stock has a beta of 2.4 on the percentage change in GNP and a beta of -.7 on the interest rate. If the expected rate of return on the stock is 10 percent, what is the revised expected return on the stock if GNP actually grows by 4.3 percent and the interest rate is 4.5 percent? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Revised expected return %

Step by Step Solution

There are 3 Steps involved in it

Step: 1

blur-text-image

Get Instant Access to Expert-Tailored Solutions

See step-by-step solutions with expert insights and AI powered tools for academic success

Step: 2

blur-text-image

Step: 3

blur-text-image

Ace Your Homework with AI

Get the answers you need in no time with our AI-driven, step-by-step assistance

Get Started

Recommended Textbook for

Parimutuel Applications In Finance New Markets For New Risks

Authors: Ken Baron, Jeffrey Lange

1st Edition

1403939500, 9781403939500

More Books

Students also viewed these Finance questions

Question

Can you carry 1 m3 of liquid water?

Answered: 1 week ago