The following sector model is given to you along with the factors Telecom sector model Factors Factor forecast Stock’s standardised exposure (to the telecom sector) Earnings growth +2.0% -0.34 Interest rate sensitivity +2.5% -1.29 Size -1.5% +0.45 ROE 0.0% -0.69 ROA +3.0% -0.69 The Stock’s beta is 1.1, and expected market excess return is 6%. The telecom industry’s forecast excess return is 8%. Calculate the stock’s excess return using The factor model (APT)
The following sector model is given to you along with the factors Telecom sector model Factors Factor forecast Stock’s standardised exposure (to the telecom sector) Earnings growth +2.0% -0.34 Interest rate sensitivity +2.5% -1.29 Size -1.5% +0.45 ROE 0.0% -0.69 ROA +3.0% -0.69 The Stock’s beta is 1.1, and expected market excess return is 6%. The telecom industry’s forecast excess return is 8%. Calculate the stock’s excess return using The factor model (APT)
Chapter3: Evaluation Of Financial Performance
Section: Chapter Questions
Problem 11P
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Question
The following sector model is given to you along with the factors
Telecom sector model
Factors Factor forecast Stock’s standardised exposure
(to the telecom sector)
Earnings growth +2.0% -0.34
Interest rate sensitivity +2.5% -1.29
Size -1.5% +0.45
ROE 0.0% -0.69
ROA +3.0% -0.69
The Stock’s beta is 1.1, and expected market excess return is 6%. The telecom industry’s forecast excess
return is 8%.
Calculate the stock’s excess return using The factor model (APT)
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