Explanation:
The equation for a single factor model for stock i is given by:
Where:
revised return for stock i
the expected return for stock i
the jth factor-beta for stock i
the deviation of the factor j from its expected value
the firm-specific return for stock i
In our case:
Ultimate access to all questions.
Q.89 The common stock of General Electric is examined with a single factor model using unexpected percentage changes in GDP as the single factor. You have been provided with the following data:
Revised macroeconomic information strongly suggests that the GDP will grow by 2% as opposed to the original prediction of 4%. Assuming there’s no new information regarding firm-specific events, the revised expected return using a single factor model is closest to:
A
5.9%
B
6.2%
C
8.6%
D
5.4%
No comments yet.