Sources of systematic risk with associated risk premiums

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Reference no: EM132007559

Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums. Factor Risk Premium Industrial production (I) 6% Interest rates (R) 3 Consumer confidence (C) 4 The return on a particular stock is generated according to the following equation: r = 16% + 1.5I + 0.8R + 1.10C + e a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 8%. (Do not round intermediate calculations. Omit the "%" sign in your response.) Equilibrium rate of return % a-2. Is the stock over- or underpriced? Overpriced Underpriced.

Reference no: EM132007559

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