Chapter 12, Problem 2QAP

a

Summary Introduction

Adequate information:

Beta for GDP factor $\left({\text{β}}_{\text{GDP}}\right)$ = 0.0000734

Beta for inflation factor $\left({\text{β}}_{\text{Inf}}\right)$ = -0.90

Beta for interest rates $\left({\text{β}}_{\text{Int}}\right)$ = -0.32

Expected value for GDP factor $\left({\text{EV}}_{\text{GDP}}\right)$ = $19,571

Expected value for inflation factor $\left({\text{EV}}_{\text{Inf}}\right)$ = 0.026

Expected value for interest rates $\left({\text{EV}}_{\text{Int}}\right)$ = 0.034

Actual value for GDP factor $\left({\text{AV}}_{\text{GDP}}\right)$ = $19,843

Actual value for inflation factor $\left({\text{AV}}_{\text{Inf}}\right)$ = 0.027

Actual value for interest rates $\left({\text{AV}}_{\text{Int}}\right)$ = 0.032

To compute: Systematic risk of the stock return

Introduction: Systematic risk refers to the risk that affects the entire market, hence, these types of risk are non-diversifiable.

b

Summary Introduction

Adequate information:

Unsystematic return $\left(\text{ε}\right)$ = -0.0085

Expected return on the stock $\left(\text{ER}\right)$ = 0.109

To compute: Total return on the stock

Introduction: Total return refers to the return actually made on the stock.