A researcher has determined that a two-factor model is appropriate to determine

Question

A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 5.3 percent, and the interest rate is expected to be 4.8 percent. A stock has a beta of 3.0 on the percentage change in GNP and a beta of

A researcher has determined that a two-factor model is appropriate to determine the return on a stock. The factors are the percentage change in GNP and an interest rate. GNP is expected to grow by 5.3 percent, and the interest rate is expected to be 4.8 percent. A stock has a beta of 3.0 on the percentage change in GNP and a beta of

Explanation / Answer

I have solved the problem in excel. I am not able to paste the solution here, the values are changing when I paste. The expected rate of return on stock should be calculated with the help of below mentioned formula.

Ri = ai + ?i(m) Rm + ?i(1)F1 + ?i(2)F2 +

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