Consider the following multifactor(APT) model of security returns for a particular stockFACTOR FACTOR BETA FACTOR RISK PREMIUMinflation 1.1 9%industrial production 0.7 11oil prices 0.3 7
If t-bills currently offers a 6% yield, find the expected rate of return on this stock, if the market views the stock as fairly priced.Expected rate of return: ?Suppose that the market expected the values for the three macro factors given in column 1 below, but the actual values turns 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 CHANGEinflation 7% 3%industrial production 6 7oil prices 4 0 Expected rate of return: ?
Alpha and Pricing The risk free rate is 1.7% and the market price of risk is 5.5%. A stock with a beta of 1.2 has an expected dividend yield of 5% and an expected capital gain of 4%. This stock’s alpha is equal to ______ and the stock is ________.-9.55%; underpriced0.7%; underpriced+9.55%; overpriced-0.7%; overpriced
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