Suppose That We Have Identified Three Important Systematic Risk Factors

Multiple Choice

Suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial production.In the beginning of the year, growth in these three factors is estimated at
-1%, 2.5%, and 3.5% respectively.However, actual growth in these factors turn out to be 1%, -2%, and
2%) The factor betas are given by bEX = 1.8, bI = 0.7, and bIP = 1.0.The expected return on the equity
Is 6%.Calculate the equity's total return if the company announces that an important patent filing
Has been granted sooner than expected and will earn the company 5% more in return.

A) 7.95%
B) 9.95%
C) 11.55%
D) 7.90%
E) 9.35%