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%.What would the equity's total return be if the actual growth in each of the facts was equal to
Growth expected? Assume no unexpected news on the patent.

A) 4%
B) 5%
C) 6%
D) 7%
E) 8%