Suppose That We Have Identified Three Important Systematic Risk Factors

Suppose that we have identified three important systematic risk factors given by exports,inflation,and industrial production. In the beginning of the year,growth in these three factors is estimated at -1%,2.5%,and 3.5% respectively. However,actual growth in these factors turns out to be 1%,-2%,and 2%. The factor betas are given by β_EX = 1.8,β_I = 0.7,and β_IP = 1.0. Calculate the stock's total return if the company announces that an important patent filing has been granted sooner than expected and will earn the company 5% more in return.

A) 7.95%
B) 9.95%
C) 11.55%
D) 7.90%
E) 9.35%

Correct Answer:

Verified

Unlock this answer now
Get Access to more Verified Answers free of charge

Access For Free