Question: Suppose a factor model is appropriate to describe the returns on a stock. The current expected return on the stock is 11.2 percent. Information about
Suppose a factor model is appropriate to describe the returns on a stock. The current expected return on the stock is 11.2 percent. Information about those factors is presented in the following chart:
| Factor | Expected Value | Actual Value | |
|---|---|---|---|
| Growth in GNP | 1.95 | 3.2% | 3.7% |
| Inflation | 1.43 | 5.4 | 5.9 |
a. | What is the systematic risk of the stock return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
b. | The firm announced that its market share had unexpectedly increased from 30 percent to 34 percent. Investors know from past experience that the stock return will increase by .40 percent for every 1 percent increase in its market share. What is the unsystematic risk of the stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
c. | What is the total return on this stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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