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Problem #3.(10 points) Research has identified two systematic factors that affect U.S.stock returns. The factors are growth in industrial production and changes in long-term interest
Problem #3.(10 points) Research has identified 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%, and long-term interest rates are expected to increase by 1%. You are analyzing a stock that has a beta of 1.2 on the industrial production factor and 5 on the interest rate factor. It currently has an expected return of 12%. However, if industrial production actually grows 5% and interest rates drop 2%, what is your best guess of the stock's return
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