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) Required: Risk Premium 8% 3 6 The return on a particular stock is generated according to the following equation: = 13% +1.4/+0.8R+1.10 C+ e •-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Note: Do not round Intermediate calculations. Round your answer to 1 decimal place. a-2. Is the stock over- or underpriced? a-1. Equilibrium rate of return 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) Required: Risk Premium 8% 3 6 The return on a particular stock is generated according to the following equation: = 13% +1.4/+0.8R+1.10 C+ e •-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Note: Do not round Intermediate calculations. Round your answer to 1 decimal place. a-2. Is the stock over- or underpriced? a-1. Equilibrium rate of return 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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Question
am. 164.
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)
Required:
Risk Premium
8%
3
6
The return on a particular stock is generated according to the following equation:
= 13% +1.4/+0.8R+1.10 C+ e
•-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%.
Note: Do not round Intermediate calculations. Round your answer to 1 decimal place.
a-2. Is the stock over- or underpriced?
a-1. Equilibrium rate of return
a-2. Is the stock over- or underpriced?
%
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