Consider the following data relating to macroeconomic variables and the returns

Question

Consider the following data relating to macroeconomic variables and the returns on a stock, ErGas, Inc. evaluated using the Arbitrage Pricing Theory model of risk premiums: Table: Data on key economic variables and the return on a stock Factor Expected value (annual rate) at quarter beginning Actual value (annual rate) experienced Factor excess return beta coefficient for ErGas Inc If the T-Bill interest rate was 1.5% at the beginning of the quarter, what was the expected return on ErGas Inc. over the previous quarter? What is the expected return over the next quarter if the T-Bill rate is now 1.8%? Suppose the actual return on ErGas Inc. stock over the previous quarter was 21.4%. What do you infer was the unsystematic component of that return?

Explanation / Answer

Expected rerun over the quarter=Risk free rate +Beta(Risk premium)

=1.5%+0.8(0.8)

=1.5%+0.64

=2.14%

Related Questions

Navigate

• Browse (All)
• Browse C
• Subjects

---

---

Integrity-first tutoring: explanations and feedback only — we do not complete graded work. Learn more.