Use the following information to answer questions: Suppose I believe a Macroeconomic multifactor asset pricing model is a correct description of the risk-return relationship for equity returns. The model takes the following form: I plan on buying both stocks to create a portfolio. The portfolio is made up of 30% of Stock X and70% of Stock Y with the following factor sensitivities: Stock Intercept b1 b2 X 0.55 1.15 0.7 Y 0.25 0.88 1.2 What is the model of your portfolio if you decide to make your portfolio up of 30% of Stock X and70% of Stock Y? What is the expected return of this portfolio according to this model? Using the following information, what is the return of your portfolio?

Variable Actual Value (%) Expected Value (%)

Change in inflation rate 1.5 0

Growth in GDP. 2 3