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An analyst is estimating the sensitivity of the return of stock A to different macroeconomic factors. The following estimates for the factor betas are prepared:
βIndustrial production = 1.30, βInterest rate = -0.75
Under baseline expectations, with industrial production growth of 3.0% and an interest rate of 1.5%, the expected return for Stock A is estimated to be 5.0%. The economic research department is forecasting an acceleration of economic activity for the following year, with industrial production forecast to grow to 4.2% and interest rates increasing 25 bps to 1.75%. According to this forecast, what return of Stock A can be expected for next year?