Equilibrium rate of return using APT
Not what you're looking for?
1. Suppose the market can be described by the following three sources of systematic risk with associated risk premiums.
Factor Risk Premium
Industrial production (I) 7%
Interest rates ( R) 3
Consumer confidence ( C) 5
The return on a particular stock is generated according to the following equation:
R = 10% + 1.5 I + 0.6 R + .70 C + e
Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 5%.
Is the stock over- or under-priced? Explain.
Purchase this Solution
Solution Summary
The solution explains how to calculate the equilibrium rate of return using APT.
Solution Preview
Under APT
Equilibrium return = Risk free rate + 1.5 I + 0.6 R + .70 C
Equilibrium return = 5% + 1.5 ...
Purchase this Solution
Free BrainMass Quizzes
Economics, Basic Concepts, Demand-Supply-Equilibrium
The quiz tests the basic concepts of demand, supply, and equilibrium in a free market.
Pricing Strategies
Discussion about various pricing techniques of profit-seeking firms.
Economic Issues and Concepts
This quiz provides a review of the basic microeconomic concepts. Students can test their understanding of major economic issues.
Elementary Microeconomics
This quiz reviews the basic concept of supply and demand analysis.
Basics of Economics
Quiz will help you to review some basics of microeconomics and macroeconomics which are often not understood.