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Why will the total return of the stock be six percent

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Reference no: EM132616819

Suppose that three major systematic risk factors have been identified and these are exports, inflation, and industrial production.

At the beginning of the year, the growth of these three factors was estimated at -1%, 2.5%, and 3.5% respectively.

However, the actual growth in these factors was 1%, -2% and 2%. The respective beta factors are bEX = 1.8, bI = 0.7, and bPI = 1.0.

Problem 1: Assume there is no unexpected patent news,If the actual growth rate of each factor is equal to the expected growth rate, why will the total return of the stock be 6%?

Problem 2: if the company announces that it has had an industrial accident for which the operating structures will have to remain closed for a certain period of time, reducing the company's revenues by 7%,why the total return of a share is -2.05% ?

Reference no: EM132616819

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