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Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3%, and IR 4.3%. A stock with a beta of 1.7 on IP and 1.2 on IR currently is expected to provide a rate of return of 14%. If industrial production actually grows by 7%, while the inflation rate turns out to be 6.0%, what is your revised estimate of the expected rate of return on the stock?

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Financial Management, Finance

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