Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) a-2. Is the stock over- or underpriced?
Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 4%. (Do not round intermediate calculations. Round your answer to 1 decimal place.) a-2. Is the stock over- or underpriced?
Chapter8: Analysis Of Risk And Return
Section: Chapter Questions
Problem 25P
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100%
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.
Factor | Risk Premium | |
Industrial production (I) | 8 | % |
Interest rates (R) | 4 | % |
Consumer confidence (C) | 6 | % |
The return on a particular stock is generated according to the following equation:
r = 16% + 1.6I + 0.8R + 1.30C + e
a-1. Find the equilibrium
a-2. Is the stock over- or underpriced?
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