Asked by Abdullah Hantuli on Jul 02, 2024
Verified
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.
- Examine the impact of macroeconomic elements on stock returns through the application of multi-factor models.
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MP
Learning Objectives
- Examine the impact of macroeconomic elements on stock returns through the application of multi-factor models.