Suppose a three-factor model is appropriate to describe the returns of a stock. Information about...
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Accounting
| Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: |
| Factor | Expected Value | Actual Value | |
|---|---|---|---|
| GDP | .0000615 | $ 22,432 | $ 23,187 |
| Inflation | .90 | 2.3% | 2.6% |
| Interest rates | .32 | 2.8% | 3.1% |
| a. | What is the systematic risk of the stock return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
| b. | Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.25 percent. If the expected return on the stock is 11.5 percent, what is the total return on this stock? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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