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)	6	%
Interest rates (R)	2	%
Consumer confidence (C)	3	%

The return on a particular stock is generated according to the following equation: r = 13% + 1.3I + 0.8R + 1.00C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 3%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

Equilibrium rate of return %

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

multiple choice

• Underpriced

• Overpriced