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A. Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected
A. Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to return 8.2% and IR 9.2%. What is the expected return of a stock with a beta of 1 on IP and 0.8 on IR, if the risk free rate is 3.2%.
B. If industrial production actually grows by 7.2%, while the inflation rate turns out to be 10.2%, what is your best guess for the stocks actual rate of return?
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