According to the Arbitrage Pricing Theory (APT), the standard expected return is calculated as:

$E(R) = R_f + \beta_1 \times RP_1 + \beta_2 \times RP_2$

Where:

• $R_f$ is the risk-free rate = $1%$
• $\beta_1$ (Short-term interest rate) = $-0.9$
• $RP_1$ (Short-term interest rate risk premium) = $3%$
• $\beta_2$ (GDP) = $1.3$
• $RP_2$ (GDP risk premium) = $7%$

Standard Expected Return = $1% + (-0.9 \times 3%) + (1.3 \times 7%) = 1% - 2.7% + 9.1% = 7.4%$

However, the analysts have specific expectations (shocks/unexpected changes) that differ from the market:

• Unexpected change in interest rate = $100\text{ bps} = +1%$
• Unexpected change in GDP = $50\text{ bps} = +0.5%$

The revised return based on these specific macroeconomic expectations is: $\text{Revised Return} = E(R) + \beta_1 \times \Delta F_1 + \beta_2 \times \Delta F_2$ $\text{Revised Return} = 7.4\% + (-0.9 \times 1\%) + (1.3 \times 0.5\%)$ $\text{Revised Return} = 7.4\% - 0.9\% + 0.65\% = 7.15\%$