Business, 10.06.2021 17:50 person4936
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart:
Factor ? Expected Value Actual Value
GDP .0000734 $17,034 $17,863
Inflation -.90 2.80% 2.6%
Interest rates -.32 3.70% 3.5%
a) What is the systematic risk of the stock return?
b) Suppose unexpected bad news about the firm was announced that causes the stock price to drop by 1.1 percent. If the expected return on the stock is 11.7 percent, what is the total return on this stock?
I tried to follow a example, but couldn't follow the math to get the same answer. Please walk me through this, as if I were a child; I am old, horrible at math, and trying to learn. I do not have Excel.
Here is my attempt at a)
M = .0000734 ($17,863 – 17,034) – .90(2.60% - 2.80%) - .32(3.50% - 3.70)
M = .0000734 (829) - .90 (-.02) - .32(-.02)
M = .0608486 - -.018 - -0.0064
M = .2472486 (Wrong, I assume)
I couldn't attempt b because I wasn't able to follow the example.
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Suppose a three-factor model is appropriate to describe the returns of a stock. Information about th...
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