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Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium 8% Factor Industrial production
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Risk Premium 8% Factor Industrial production (I) Interest rates (R) Consumer confidence (C) The return on a particular stock is generated according to the following equation: p= 19% +0.7/+ 0.4R+ 0.60 C+ 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.) Equilibrium rate of return a-2. Is the stock over- or underpriced? o Overpriced Underpriced
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