Asked by Flaviano Maurice on Jun 02, 2024
Verified
The two-factor model on a stock provides a risk premium for exposure to market risk of 12%, a risk premium for exposure to silver commodity prices of 3.5%, and a risk-free rate of 4%. The beta for exposure to market risk is 1, and the beta for exposure to commodity prices is also 1. What is the expected return on the stock?
A) 11.6%
B) 13%
C) 15.3%
D) 19.5%
Two-factor Model
A Two-factor Model in finance is an asset pricing model that uses two variables to calculate the value of an asset or the expected return.
Commodity Prices
The market prices for raw materials or primary agricultural products.
Market Risk
The risk of losses in investments due to factors that affect the entire market or economy.
- Investigate how macroeconomic variables influence stock returns utilizing multi-factor models.
Verified Answer
ZK
Learning Objectives
- Investigate how macroeconomic variables influence stock returns utilizing multi-factor models.