A stock has three risk factors with loadings of 0.78, 1.3 and 1.1. The first risk factor isthe same as the CAPM. The other two factors have risk premia of 3.4% and 4.8% p.a.respectively. Given that the stock is believed to be fairly priced, has an expected returnof 13.7% and the US treasury bill rate is 1.53% p.a., what is the expected return on themarket for the coming year?Answer:

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of 13.7% and the US treasury bill rate is 1.53% p.a., what is the expected return on the market for the coming year?

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

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Question

A stock has three risk factors with loadings of 0.78, 1.3 and 1.1. The first risk factor is
the same as the CAPM. The other two factors have risk premia of 3.4% and 4.8% p.a.
respectively. Given that the stock is believed to be fairly priced, has an expected return
of 13.7% and the US treasury bill rate is 1.53% p.a., what is the expected return on the
market for the coming year?
Answer:

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