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Problem 10-10 Consider the following multifactor (APT) model of security returns for a particular stock....

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Problem 10-10 Consider the following multifactor (APT) model of security returns for a particular stock. Factor Inflation Industrial production 011 prices Factor Beta 1.0 0.4 0.2 Factor Risk Prentun 10% 12 8 a. If T-bills currently offer a 5% yield, find the expected rate of return on this stock if the market views the stock as fairly priced (Do not round intermediate calculations. Round your answer to 1 decimal place.) Expected rate of return 96 b. Suppose that the market expects 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 (Do not round intermediate calculotions. Round your answer to 1 decimal place.) Expected Value Actual Value 7 - Industrial production ost prices 6

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