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Suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial...

  1. Suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial production. In the beginning of the year, growth in these three factors is estimated at -1%, 2.5%, and 3.5% respectively. However, actual growth in these factors turns out to be 1%, -2%, and 2%. The factor betas are given by bEX = 1.8, bI = 0.7, and bIP = 1.0.

The company announces that they had an industrial accident and the operating facilities will close down for some time thus resulting in a loss by the company of 7% in return. Assume expected return on the stock is 6%.

  1. What is the systematic risk component of the stock return?
  2. What is the unsystematic risk component of the stock return?
  3. Calculate the stock's total return.
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