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Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (
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) | 3 | % | |
Consumer confidence (C) | 6 | % | |
The return on a particular stock is generated according to the following equation:
r = 10% + 1.0I + 0.6R + 0.80C + 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.)
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