Bhupatbhai Problem 12-1 Factor ModelsA researcher has determined that a two-factor model is appropriate to determine thereturn on a stock. The factors are the percentage change in GNP and an interest rate.GNP is expected to grow by 4.5 percent and the interest rate is expected to be 4percent. A stock has a beta of 2.2 on the percentage change in GNP and a beta of -84on the interest rate. If the expected rate of return on the stock is 13 percent, what is therevised expected return on the stock if GNP actually grows by 4.1 percent and theinterest rate is 4.3 percent? (Do not round intermediate calculations and enter youranswer as a percent rounded to 2 decimal places, e.g., 32.16.)Revised expected return%

Two factor modelExpected rate of return = Risk-free rate + Growth in factor 1 * Beta of Factor 1 +…

and an interest ra is expected to grow by 4.5 percent and the interest rate is expected to be ercent. A stock has a beta of 2.2 on the percentage change in GNP and a beta of — n the interest rate. If the expected rate of return on the stock is 13 percent, what is th evised expected return on the stock if GNP actually grows by 4.1 percent and th nterest rate is 4.3 percent? (Do not round intermediate calculations and enter you nswer as a percent rounded to 2 decimal places, e.g., 32.16.) Revised expected return %

and an interest ra is expected to grow by 4.5 percent and the interest rate is expected to be ercent. A stock has a beta of 2.2 on the percentage change in GNP and a beta of — n the interest rate. If the expected rate of return on the stock is 13 percent, what is th evised expected return on the stock if GNP actually grows by 4.1 percent and th nterest rate is 4.3 percent? (Do not round intermediate calculations and enter you nswer as a percent rounded to 2 decimal places, e.g., 32.16.) Revised expected return %

EBK CFIN

6th Edition

ISBN:9781337671743

Author:BESLEY

Publisher:BESLEY

Chapter8: Risk And Rates Of Return

Section: Chapter Questions

Problem 17PROB

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