Question: Suppose that the market can be described by the following
Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. The return on a particular stock is generated according to the following equation: r = 15% + 1.0I + 0.5R + 0.75C + e.
Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 6%. Is the stock over- or under priced? Explain.
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