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

FactorRisk Premium Industrial production (I)7% Interest rates (R)4% Consumer confidence (C)5%

The return on a particular stock is generated according to the following equation: r = 12% + 1.2I + 0.8R + 1.00C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 8%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

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

Underpriced

Overpriced