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Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. The return on a particular stock

Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + e.

Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Is the stock over- or underpriced? Explain.

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