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 b_EX = 1.8,b_I = 0.7,and b_IP = 1.0.If the expected return on the equity is 6%,and no unexpected news concerning the equity surfaces,calculate the equity's total return.

A) 2.95%
B) 4.95%
C) 6.55%
D) 7.40%
E) 8.85%