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.Calculate the equity's total return if the company announces that they had an industrial accident and the operating facilities will closed down for some time thus resulting in a loss by the company of 7% in return.

A) -4.05%
B) -2.05%
C) 4.55%
D) 0.40%
E) 1.85%