Question

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors....

The stock of Arbor Pet Trees (APT) is priced based on the given systematic risk factors. Estimated sensitivities to these risk factors are given by the betas of the regression

RAPT – Rrf = βcreditRcredit + βvalue Rvalue + α + ε

Factor Risk Premium Beta
Credit Risk 6.8% 1.1
Valuation Risk 3.7% 0.2
Risk-free rate 2%

What is the expected return on the stock of Arbor Pet Trees if the stock is fairly valued?

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta Factor Risk Premium Inflation 1.1 9 % Industrial production 0.7 11 Oil prices 0.3 7 a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) b. Suppose that the market expects the values for the three...
Suppose that we have identified three important systematic risk factors given by exports, inflation, and industrial...
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...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT