- CFA Exams
- CFA Level I Exam
- Topic 9. Portfolio Management
- Learning Module 41. Using Multifactor Models
- Subject 2. Factors and Types of Multifactor Models

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**CFA Practice Question**

Assume that a stock's returns are affected by two factors: surprises in inflation and surprises in GDP growth:
R = 8% - 0.5 F

_{infl}+ 1.25F_{GDP}+ εSuppose the error term is 0.2%. If the inflation was expected to be 2% but it'??s actually 2.5%. GDP growth was supposed to be 2.4% but it was actually 2.1%. What should be the return on the stock?

A. 7.375%

B. 7.575%

C. 8.325%

**Explanation:**8% - 0.5 x 0.5% + 1.25 x (-0.3%) + 0.2% = 7.575%

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