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Find what is best guess for the rate of return on the stock

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Problem 1: Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3% and IR 7%. A stock with a beta of 1 on IP and 0.8 on IR currently is expected to provide a rate of return of 16%. If industrial production actually grows by 4%, while the inflation rate turns out to be 10%, what is your best guess for the rate of return on the stock?

Reference no: EM133002206

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