1. BPI is exposed to the ff. risks Foreign exhange rate Debtors' ability to pay Interest rate movement Household consumption level High ratio of older personnel or management during COVID Number of labor force who were layoff during the period The level of exposure of this bank to 3 other systematic factors are 0.50, 0.65, and 0.70 with each factor change data of 5%, 3.5%, and 1.5%, respectively. This is a blue-chip company which is included in the PSEi and a reasonable assessment of its market sensitivity is 1.38. The government on-the-run bond has interest earnings of 3.8% and PSEi return is 7.8% a. With the listed risks, identify the systematic risks from unsystematic risks. b. USing the identified systematic risks calculate the expected return of BPI stock using Arbitrage Pricing Model c. Extract the needed data and calculate beta d. Calculate the CAPM rate of return of the BPI stock. If 10/31/2020 price is P90.00 and the 10/31/2021 price is P97.00. Is it undervalued, overvalued, or fairly valued?

Managerial Economics: Applications, Strategies and Tactics (MindTap Course List)

14th Edition

ISBN:9781305506381

Author:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Publisher:James R. McGuigan, R. Charles Moyer, Frederick H.deB. Harris

Chapter5: Business And Economic Forecasting

Section: Chapter Questions

Problem 3.1CE

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1. BPI is exposed to the ff. risks
	Foreign exhange rate
	Debtors' ability to pay
	Interest rate movement
	Household consumption level
	High ratio of older personnel or management during COVID
	Number of labor force who were layoff during the period

The level of exposure of this bank to 3 other systematic factors are 0.50, 0.65, and 0.70 with each factor change data of 5%, 3.5%, and 1.5%, respectively. This is a blue-chip company which is included in the PSEi and a reasonable assessment of its market sensitivity is 1.38. The government on-the-run bond has interest earnings of 3.8% and PSEi return is 7.8%

	a. With the listed risks, identify the systematic risks from unsystematic risks.
	b. USing the identified systematic risks calculate the expected return of BPI stock using Arbitrage Pricing Model
	c. Extract the needed data and calculate beta
	d. Calculate the CAPM rate of return of the BPI stock. If 10/31/2020 price is P90.00 and the 10/31/2021 price is P97.00. Is it undervalued, overvalued, or fairly valued?

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