Emily, an analyst at Fantastique Computers (FC), modelsthe companyâÂÂs stock assuming that the return earned on all stocksdepends on only three risk factors: inflation, industrialproduction, and the market's aggregate degree of risk aversion. Intoday's economy, the risk-free rate ( ) is 8%, while the return onthe market portfolio ( ) is 15%. Any remaining relevant data isgiven in the following table:
Variable :
The required rate of return on an inflation portfolio,13%
The required return on an industrial productionportfolio, 10%
The required return on a risk-bearing portfolio,6%
Factor sensitivity to the inflation portfolio,0.9
Factor sensitivity to the industrial productionportfolio, 1.2 Factor sensitivity to the risk-bearing portfolio,0.7
FantastiqueComputersâÂÂs beta, 1.1
Using an APT model, Emily calculates that FCâÂÂs requiredrate of return is:
a) 13.50%
b) 13.00%
c) 15.70%
d) 5.50%
If Emily used the Capital Asset Pricing Model, she wouldhave calculated that FCâÂÂs required rate of return is:
a) 15.70%
b) 0.30%
c) 13.50%
d) -7.70%