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)	7%
Interest rates (R)	2
Consumer confidence (C)	4

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

r = 18% + 0.9I + 0.4R + 0.60C + e

a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. (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

Overpriced

underpriced