Suppose You Identified Three Important Systematic Risk Factors Given by Exports,inflation,and

Multiple Choice

Suppose you identified three important systematic risk factors given by exports,inflation,and industrial production.At the beginning of the year,a firm's stock return is estimated at 9.6 percent and the growth in the three factors is estimated at −1 percent,2.5 percent,and 3.5 percent,respectively.The factor betas are: β_EX = 1.8,β_I = .7,and β_IP = 1.What would be the stock's total return if the actual growth in each of the factors was equal to the expected growth and no unexpected company news occurred?

A) 4.6 percent
B) 5.9 percent
C) 9.6 percent
D) 14.6 percent
E) 8.7 percent