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Calculate expected rates of return on the following stocks. The risk-free interest rate is 7%. a. A stock whose return is uncorrelated with all three
Calculate expected rates of return on the following stocks. The risk-free interest rate is 7%. a. A stock whose return is uncorrelated with all three factors. b. A stock with average exposure to each factor (b=1 for each). c. A pure-play energy stock with high exposure to the energy factor (b=2) but zero exposure to the other two factors. d. An aluminum company stock with average sensitivity to changes in interest rates and GNP, but negative exposure of b= 15 to the energy factor. (The aluminum company is energy-intensive and suffers when energy prices rise.)
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