practice questions ch 12 - 12.2 .Informationabout Factor GDP Inflation Interestrates.0000479 1.30.67 ExceptedValue $13,275 3.9 5.2 ActualValue $13,601

practice questions ch 12 - 12.2 .Informationabout Factor...

This preview shows page 1 - 2 out of 5 pages.

12.2 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 β Excepted Value Actual Value GDP .0000479 $13,275 $13,601 Inflation 1.30 3.9% 3.2% Interest rates .67 5.2% 4.7% a. What is the systematic risk of the stock return? b. Suppose unexpected bad news about the firm was announced that causes the stock  price to drop by 2.6 percent. If the expected return on the stock is 10.8 percent, what is  the total return on this stock? 12.3 Suppose a factor model is appropriate to describe the returns on a stock. The current expected return  on the stock is 10.5 percent. Information about those factors is presented in the following chart: Factor β Excepted Value Actual Value Growth in GNP 2.04 1.80% 2.6% Inflation 1.15 4.3 4.8 a. What is the systematic risk of the stock return? b. The firm announced that its market share had unexpectedly increased from 23 percent to 27 percent. Investors know from past experience that the stock return will increase by .45 percent for every 1 percent increase in its market share. What is the unsystematic risk of  the stock? c. What is the total return on this stock? Multifactor Models 12.4 Suppose stock returns can be explained by the following three-factor model: Assume there is no firm-specific risk. The information for each stock is presented here:   β 1 β 2 β 3
Image of page 1
Image of page 2

You've reached the end of your free preview.

Want to read all 5 pages?

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

  • Left Quote Icon

    Student Picture

Stuck? We have tutors online 24/7 who can help you get unstuck.
A+ icon
Ask Expert Tutors You can ask You can ask You can ask (will expire )
Answers in as fast as 15 minutes