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%, the expected return on the stock is ______.
A. 8%
B. 8.25%
C. 8.35%
Explanation: The expected return is simply the value of the intercept in the equation. No calculation required.

User Contributed Comments 3

User Comment
Kmoore24 What about the inflation surprise?
birdperson ya, what?
epfrndz it was asking for the "expected return" which is 8% in this case.

If you did any computation then you're going to get a computed return, which is not the expected return.
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