Suppose that the market can be described by the following

jagguarpaw January 9, 2017 0 Comments

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.