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06 Jan

Suppose there are three systematic risk factors

by jagguarpaw On: Uncategorised - 0 Comment

Question: 1. Suppose there are three systematic risk factors

1. Suppose there are three systematic risk factors in the market, what is the expected return of the stocks described below? The risk-free rate is 3%

Risk Risk Premium A Betas B Betas
Industrial Production (IP)  5% 1.2 -0.6
Interest Rates (IR) 6% -0.8 1.3
Credit Risk (CR) 9% 0.9 1.9

2. If over the course of the year stock A higher a superstar CEO, resulting in a 2% increase, while B experienced a fire which resulted in a 3% loss. Additionally, the actual IP return was 10%, IR was 8%, and CR was 13%. What are the stocks actual returns over the year? Please Show Work!

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