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Consider the following data relating to macroeconomic variables and the returns on a stock, ErGas, Inc. evaluated using the Arbitrage Pricing Theory model of risk

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Consider the following data relating to macroeconomic variables and the returns on a stock, ErGas, Inc. evaluated using the Arbitrage Pricing Theory model of risk premiums: Table: Data on key economic variables and the return on a stock Factor Expected value Actual value Factor excess beta coefficient (annual rate) at quarter beginning (annual rate) experienced return for ErGas Inc GNP growth 0.035 0.037 3.5 1.5 Inflation rate 0.021 0.023 1.5 0.6 10-year Treasury return 0.045 0.048 0.8 0.8 Foreign exchange value -0.015 -0.025 0.5 ?IS Oil price change 0.04 0.075 0.5 2.5 (a) If the T-Bill interest rate was 1.5% at the beginning of the quarter, what was the expected return on ErGas Inc. over the previous quarter? (b) What is the expected return over the next quarter if the T-Bill rate is now 1.8%? (c) Suppose the actual return on ErGas Inc. stock over the previous quarter was 21.4%. What do you infer was the unsystematic component of that return? Consider the following data relating to macroeconomic variables and the returns on a stock, ErGas, Inc. evaluated using the Arbitrage Pricing Theory model of risk premiums: Table: Data on key economic variables and the return on a stock Factor Expected value Actual value Factor excess beta coefficient (annual rate) at quarter beginning (annual rate) experienced return for ErGas Inc GNP growth 0.035 0.037 3.5 1.5 Inflation rate 0.021 0.023 1.5 0.6 10-year Treasury return 0.045 0.048 0.8 0.8 Foreign exchange value -0.015 -0.025 0.5 ?IS Oil price change 0.04 0.075 0.5 2.5 (a) If the T-Bill interest rate was 1.5% at the beginning of the quarter, what was the expected return on ErGas Inc. over the previous quarter? (b) What is the expected return over the next quarter if the T-Bill rate is now 1.8%? (c) Suppose the actual return on ErGas Inc. stock over the previous quarter was 21.4%. What do you infer was the unsystematic component of that return

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