1. Suppose that the market can be described by the following four sources of systematic risk with associated risk premiums:

   Factor	Risk Premium of a factor portfolio (%)
   Industrial Production (I)	4
   Interest rates (R)	5
   Consumer condence (C)	2
   Inflation rate (F)	3

   The return on a particular welldiversied portfolio is generated according to the following equation

   r_P = 10% + 2I + 1R + 0.5C+1.2F

   where I, R, C, and F are unanticipated components in Industrial Production, Interest rates, Consumer condence, and inflation rate, respectively. The Tbill rate is 3%

   1. Find the ecient rate of return of this portfolio using the APT.
   2. Is the stock over or under- priced? Explain.