Consider the following multifactor (APT) model of security returns for a particular
| Factor Don't use plagiarized sources. Get Your Custom Essay on consider the following multifactor apt model of security returns for a particular 551827 For $10/Page 0nly | Factor Beta | Factor Risk Premium |
| Inflation | 1.2 | 6% |
| Industrial production | 0.5 | 8 |
| Oil prices | 0.3 | 3 |
a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced.
b. Suppose that the market expected the values for the three macro factors given in
column 1 below, but that the actual values turn out as given in
column 2. Calculate the revised expectations for the rate of return on the stock once the “surprises” become known.
| Factor | Expected Rate of Change | Actual Rate of Change |
| Inflation | 5% | 4% |
| Industrial production | 3 | 6 |
| Oil prices | 2 | 0 |
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