Suppose an analyst examines expected return for the Broad Band Company (BBC) base on a 2-factor model. Initially, the expected return for BBC equals 10%. The analyst identifies GDP and 10-year interest rates as the two factors for the factor model. Assume the following data is used:

• GDP growth consensus forecast = 6%
• Interest rate consensus forecast = 3%
• GDP factor beta for BBC = 1.5
• Interest rate factor beta for BBC = -1.00

Suppose GDP ends up growing 5% and the 10-year interest rate ends up equaling 4%. Also assume that during the period, the Broad Band Company unexpectedly experiences shortage of key inputs, causing its revenues to be less than originally expected.

Consequently, the firm-specific return is -2% during the period. Using the 2-factor model with the revised data, which of the following updated expected returns next year for BBC is correct?