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

Factor	Risk Premium
Industrial production (I)	8	%
Interest rates (R)	3	%
Consumer confidence (C)	7	%

The return on a particular stock is generated according to the following equation:

r = 15% + 1.5I + 0.9R + 1.20C + e

a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 5%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

a-2. Is the stock over- or underpriced?

• Overpriced

• Underpriced