Explore BrainMass

Factor Models: Systematic Risk of the Stock

see attachment

3. Factor Models. Suppose a factor model is appropriate to describe the returns on a stock. The current expected return on the stock is 10.5 percent. Information about those factors is presented in the following chart:
Factor ? Expected Value Actual Value
Growth in GNP 2.04 1.80% 2.6%
Inflation -1.15 4.3 4.8
a. What is the systematic risk of the stock?
b. The firm announced that its market share had unexpectedly increased from 23 percent to 27 percent. Investors know from past experience that the stock return will increase by .45 percent for every 1 percent increase in its market share. What is the unsystematic risk of the stock?
c. What is the total return on this stock?


Solution Preview

Please see the attached file(s) for the complete tutorial. Thank you for the opportunity to be of assistance and of course, the opportunity to learn as well.
Anna, 108710

NOTE: I also included a screen capture of the two-factor model which might help you understand

3. Factor Models. ...

Solution Summary

The systematic risks of the stocks and factor models are examined. The effects of a market share unexpectedly increasing is determined.