The risk premium for exposure to exchange rates is 5%, and the firm has a beta relative to exchange rates of .4. The risk premium for exposure to the consumer price index is -6%, and the firm has a beta relative to the CPI of .8. If the risk-free rate is 3%, what is the expected return on this stock?

A) .2%
B) 1.5%
C) 3.6%
D) 4%

Exchange Rates

The value of one currency for the purpose of conversion to another.

Consumer Price Index

A measure that examines the weighted average of prices of a basket of consumer goods and services, such as transportation, food, and medical care, commonly used as an indicator of inflation.

Risk Premium

The extra return demanded by investors for holding a riskier asset compared to a risk-free investment.