A researcher has determined that a two-factor model is appropriate to determine the return on a share. The factors are the percentage change in GNP and an interest rate. GNP market return is expected to grow by 13.5 percent and interest rate is expected to be 12.9 percent. A share has a beta of 1.2 on the GNP and -0.8 on the interest rate. If the risk-free rate is 11 percent, calculate the required rate of return on the share using APT.

A researcher has determined that a two-factor model is appropriate to determine the return on a share. The factors are the percentage change in GNP and an interest rate. GNP market return is expected to grow by 13.5 percent and interest rate is expected to be 12.9 percent. A share has a beta of 1.2 on the GNP and -0.8 on the interest rate. If the risk-free rate is 11 percent, calculate the required rate of return on the share using APT.

EBK CONTEMPORARY FINANCIAL MANAGEMENT

14th Edition

ISBN:9781337514835

Author:MOYER

Publisher:MOYER

Chapter8: Analysis Of Risk And Return

Section: Chapter Questions

Problem 14P

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