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Which of the following is the expected return of a security where the return on an...

Which of the following is the expected return of a security where the return on an asset with zero systemic risk is 2%, the risk premia associated with unexpected changes in GDP and Inflation are 3% and 1% and the sensitivity or response of the securities to these risk premia are 0.5 and 1.5 respectively?
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Answer #1

Expected return=return with zero systematic risk+sensitivity to GDP*risk premium for GDP+sensitivity to inflation*risk premium for inflation=2%+3%*0.5+1%*1.5=5%

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