Maurice Tutor

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    Argosy University/ Phoniex University/
    Nov-2005 - Oct-2011

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    Phoniex University
    Oct-2001 - Nov-2016

Category > Accounting Posted 26 Sep 2017 My Price 5.00

model of security returns

Consider the following multifactor (APT) model of security returns for a particular

Factor

Factor Beta

Factor Risk Premium

Inflation

1.2

6%

Industrial production

0.5

8

Oil prices

0.3

3

a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced.

b. Suppose that the market expected the values for the three macro factors given in

column 1 below, but that the actual values turn out as given in

column 2. Calculate the revised expectations for the rate of return on the stock once the “surprises” become known.

Factor

Expected Rate of Change

Actual Rate of Change

Inflation

5%

4%

Industrial production

3

6

Oil prices

2

0

 

Answers

Maurice Tutor
(5)
Status NEW Posted 26 Sep 2017 01:09 PM My Price 5.00

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