Assume there are two systematic factors that affect U.S. stock returns. The factors are growth in

industrial production and changes in long-term interest rates. Industrial production growth is expected

to be 3.5%, and long-term interest rates are expected to decrease by 2%. You are analyzing a stock that

has a beta of 1.5 on the industrial production factor and 2.5 on the interest rate factor. The stock currently

has an expected return of 19%. However, if industrial production actually grows 4% and interest rates

rise by 1%, what is your best guess of the stock's return if there is no firm-specific news? Please show working.

10 Assume there are two systematic factors that affect U.S. stock returns. The factors are growth in industrial production and changes in long-term interest rates. Industrial production growth is expected to be 3.5%, and long-term interest rates are expected to decrease by 2%. You are analyzing a stock that has a beta of 1.5 on the industrial production factor and 2.5 on the interest rate factor. The stock currently has an expected return of 19%. However, if industrial production actually grows 4% and interest rates drop by 1%, what is your best guess of the stock's return if there is no firm-specific news? Your choice: 10/13 Qs 27.25% 22.25% 15.19% 22.75% Submit