Required: Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 4% and IR 5%. A stock with a beta of 1 on IP and 0.6 on IR currently is expected to provide a rate of return of 16%. If industrial production actually grows by 5%, while the inflation rate turns out to be 6%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) Rate of return 16.6%

Required: Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 4% and IR 5%. A stock with a beta of 1 on IP and 0.6 on IR currently is expected to provide a rate of return of 16%. If industrial production actually grows by 5%, while the inflation rate turns out to be 6%, what is your best guess for the rate of return on the stock? (Round your answer to 1 decimal place.) Rate of return 16.6%

Corporate Fin Focused Approach

5th Edition

ISBN:9781285660516

Author:EHRHARDT

Publisher:EHRHARDT

Chapter7: Valuation Of Stocks And Corporations

Section7.6: Valuing Nonconstant Growth Stocks

Problem 3ST

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Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 5% and IR 5%. A stock with a beta of 1 on IP and 0.7 on IR currently is expected to provide a rate of return of 10%. If industrial production actually grows by 6%, while the inflation rate turns out to be 6%, what will be your expected rate of return on the stock, given the new information about the industrial production rate and the inflation rate? (Enter your answer as a percentage rounded to 1 decimal places.) Expected rate of return %
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