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 7%. a stock with a beta of 1 on ip and 0.6 on ir currently is expected to provide a rate of return of 14%. 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?

The revised estimate on the rate of return on

the stock would be 17.2%

Explanation:

The revised estimate on the rate of return on

the stock would be 17.2%

• Before

• 14% = α +[5%*1] + [7%*0.6]

α = 4.8%

• With the changes:

• 4.8% + [6%*1] + [9%*0.6]

The new rate of return is 17.2%

consumer credit. an advantage is that it allows consumers to afford expensive goods and services now, increasing their standard of living. however, a disadvantage is that it creates a trap for debt, if people do not have self control, they may see themselves filing personal bankruptcy.