Explanation:
The multi-factor model appropriate for this problem is as follows:
(Book 1, Module 6.2, LO 6.c)
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Question 27
When modeling equity returns, a stock analyst at Multi-Asset Advisors determined that the factors impacting Olympian Chemicals relate to surprises in GDP growth and interest rate effects. Sensitivity to GDP growth is 1.1, while sensitivity to interest rate effects is 0.8. The expected return of Olympian is 11%. What return is generated for Olympian Chemicals if GDP growth deviates from expectations by 0.5%, and interest rate effects deviate by −1.2%?
A
8.7%.
B
9.6%.
C
10.6%.
D
11.8%.
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