CFA Practice Question

There are 119 practice questions for this study session.

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 Finfl + 1.25FGDP + ε

Suppose the error term is 0.6%. If inflation was expected to be 2% but it'??s actually 2.5%, and the GDP surprises is 0%, what should be the return on the stock?

A. 8%
B. 8.25%
C. 8.35%
Correct Answer: C

8% - 0.5 x 0.5% + 0.6% = 8.35%

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