Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta Factor Risk Premium Inflation 1.0 10% Industrial...

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Finance

Consider the following multifactor (APT) model of securityreturns for a particular stock.
Factor Factor Beta Factor Risk Premium
Inflation 1.0 10%
Industrial production 0.4 12%
Oil prices 0.2 8%
a. If T-bills currently offer a 5% yield, findthe expected rate of return on this stock if the market views thestock as fairly priced. (Do not round intermediatecalculations. Round your answer to 1 decimal place.)
Expected rate of return = ?%
b. Suppose that the market expects the valuesfor the three macro factors given in column 1 below, but that theactual values turn out as given in column 2. Calculate the revisedexpectations for the rate of return on the stock once the“surprises” become known. (Do not round intermediatecalculations. Round your answer to 1 decimal place.)
Factor Expected Value Actual Value
Inflation 7% 5%
Industrial production 5% 6%
Oil prices 2% 0%
Expected rate of return = ?%

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Consider the following multifactor (APT) model of securityreturns for a particular stock.FactorFactor BetaFactor Risk PremiumInflation1.010%Industrial production0.412%Oil prices0.28%a. If T-bills currently offer a 5% yield, findthe expected rate of return on this stock if the market views thestock as fairly priced. (Do not round intermediatecalculations. Round your answer to 1 decimal place.)Expected rate of return = ?%b. Suppose that the market expects the valuesfor the three macro factors given in column 1 below, but that theactual values turn out as given in column 2. Calculate the revisedexpectations for the rate of return on the stock once the“surprises” become known. (Do not round intermediatecalculations. Round your answer to 1 decimal place.)FactorExpected ValueActual ValueInflation7%5%Industrial production5%6%Oil prices2%0%Expected rate of return = ?%

Factor	Factor Beta	Factor Risk Premium
Inflation	1.0	10%
Industrial production	0.4	12%
Oil prices	0.2	8%

Factor	Expected Value	Actual Value
Inflation	7%	5%
Industrial production	5%	6%
Oil prices	2%	0%