Suppose there are three systematic risk factors
Question: 1. Suppose there are three systematic risk factors
1. Suppose there are three systematic risk factors in the market, what is the expected return of the stocks described below? The risk-free rate is 3%
|Risk||Risk Premium||A Betas||B Betas|
|Industrial Production (IP)||5%||1.2||-0.6|
|Interest Rates (IR)||6%||-0.8||1.3|
|Credit Risk (CR)||9%||0.9||1.9|
2. If over the course of the year stock A higher a superstar CEO, resulting in a 2% increase, while B experienced a fire which resulted in a 3% loss. Additionally, the actual IP return was 10%, IR was 8%, and CR was 13%. What are the stocks actual returns over the year? Please Show Work!