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Problem 2 Part A.1 (Exercise n. 27 in the book). Suppose two factors are identified in the Australian economy: the growth rat

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Answer #1

expected rate = risk free rate+IP beta*IP value+IR beta*IR value

14=risk free rate+1*4+0.4*6

risk free rate=7.6

Actual return = risk free rate+IP beta*actual IP value+IR beta*actual IR value

=7.6+1*5+0.4*7

=15.4%

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