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Problem:

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 6%. A stock with a beta of 1 on IP and 0.6 on IR currently is expected to provide a rate of return of 13%.

Required:

Question: If industrial production actually grows by 6%, while the inflation rate turns out to be 9%, what is your best guess for the rate of return on the stock?

Note: Please provide through step by step calculations.

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Accounting Basics, Accounting

Category:- Accounting Basics
Reference No.:- M91172371

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