Question
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: FactorExpected
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart:
FactorExpected ValueActual ValueGDP.0008501$14,221$14,206Inflation.893.8%3.6%Interest rates.467.0%6.8%
a.What is the systematic risk of the stock return?(A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
b.Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.2 percent. If the expected return on the stock is 13.8 percent, what is the total return on this stock?
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started