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!
