Financial Risk Manager Part 1

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Explanation:

A multifactor model (2-factor model in the given question) only includes the expected return of the stock, macroeconomic factor and the factor-beta, and firm-specific risk, which in this case is zero.

\begin{aligned} R_{WK} &= E(R_{WK}) + \beta_{GDP} F_{GDP} + \beta_I F_I \\ &= 0.07 + 1.5(0.03 - 0.045) + 2(0.029 - 0.025) \\ &= 0.07 - 0.0225 + 0.008 \\ &= 5.55\% \end{aligned}

Explanation:

\begin{aligned} R_{WK} &= E(R_{WK}) + \beta_{GDP} F_{GDP} + \beta_I F_I \\ &= 0.07 + 1.5(0.03 - 0.045) + 2(0.029 - 0.025) \\ &= 0.07 - 0.0225 + 0.008 \\ &= 5.55\% \end{aligned}

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Q.238 Suzy Ye is a junior equity research analyst at a research firm based in South Korea. For the first time, she is using the multifactor model to compute the stock return of the Wong Kong Corp (WK). She has compiled the following data for the computation of the return:
Wong Kong's expected stock return: 7%
Expected GDP growth: 4.5%
Expected Inflation: 2.5%
GDP factor beta: 1.5
Inflation factor beta: 2
Risk-free rate: 2%

Suppose the actual GDP growth and actual inflation of South Korea are 3% and 2.9%, respectively, then which of the following is an accurate estimate of the stock return?

Real Exam

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KKoray Nedim

Last updated: June 10, 2026 at 23:59

7.55%

10.05%

5.55%

18.75%