The Chief Finance Officer of Lusaka Bread has decided to use an Arbitrage Pricing Theory...
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The Chief Finance Officer of Lusaka Bread has decided to use an Arbitrage Pricing Theory ATP model to estimate the required return on the companys stock. The risk factors he plans to use are the risk premium on the stock market, the inflation rate, and the price of wheat. Because wheat is one of the biggest costs Lusaka Bread faces, he feels this is a significant risk factor for Lusaka Bread. How would you evaluate his choice of risk factors? Are there other risk factors you might suggest?
The Chief Finance Officer of Lusaka Bread has decided to use an Arbitrage Pricing Theory ATP model to estimate the required return on the companys stock. The risk factors he plans to use are the risk premium on the stock market, the inflation rate, and the price of wheat. Because wheat is one of the biggest costs Lusaka Bread faces, he feels this is a significant risk factor for Lusaka Bread. How would you evaluate his choice of risk factors? Are there other risk factors you might suggest?
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