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Andrej [43]
3 years ago
7

Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.Factor

Risk PremiumIndustrial Production (l) 8%Interest Rates (R) 5Consumer Confidence (C) 7The return on a particular stock is generated according to the following equation:r = 19% + 0.7I + 0.4R + 0.60C + eFind the equilibrium rate of return on this stock using the APT. The T-bill rate is 8%. (Do not round intermediate calculations. Omit the "%" sign in your response.)Equilibrium rate of return ______%????
Business
1 answer:
Lerok [7]3 years ago
6 0

Answer:

The equilibrium rate of return on this stock using the APT is 19.80%.

Explanation:

According to given data described in the question, In order to calculate the the equilibrium rate of return using the APT, we would have to use the following formula:

E(rj) = rf + bj1RP1 + bj2RP2 + bj3RP3 + bj4RP4 + ... + bjnRPn

Therefore, Equilibrium rate of return = 8% + 0.7*8%+0.4*5%+0.6*7%

                                                            = 19.80%

The equilibrium rate of return on this stock using the APT is 19.80%.

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