Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Industrial production (I) Interest rates (R) Consumer confidence (C) The return on a particular stock is generated according to the following equation: r=15% + 1.1/+0.6R+0.90C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 7%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Equilibrium rate of return Risk Premium. 7% 4% 6% O Underpriced O Overpriced % a-2. Is the stock over- or underpriced?
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Industrial production (I) Interest rates (R) Consumer confidence (C) The return on a particular stock is generated according to the following equation: r=15% + 1.1/+0.6R+0.90C+ e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 7%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) Equilibrium rate of return Risk Premium. 7% 4% 6% O Underpriced O Overpriced % a-2. Is the stock over- or underpriced?
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
Section: Chapter Questions
Problem 1PS
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Subject :- Finance
Transcribed Image Text:Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.
Factor
Industrial production (I)
Interest rates (R)
Consumer confidence (C)
The return on a particular stock is generated according to the following equation:
r=15% +1.1/+0.6R+ 0.90C+ e
a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 7%. (Do not round intermediate calculations.
Round your answer to 1 decimal place.)
Equilibrium rate of return
Risk Premium-
7%
4%
6%
O Underpriced
O Overpriced
%
a-2. Is the stock over- or underpriced?
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