- CFA Exams
- CFA Level I Exam
- Study Session 16. Portfolio Management (1)
- Reading 44. Using Multifactor Models
- Subject 2. Factors and types of multifactor models

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**CFA Practice Question**

Suppose that the expected return on the stock in the following table is 8%. Using a two-factor model, calculate the stock's return if the company-specific surprise for the year is 1.5%.

A. 0.5%

B. 6.5%

C. -1%

**Explanation:**The surprise in a factor equals actual value minus expected value. For the interest rate factor, the surprise was 2 percent; for the GDP factor, the surprise was -3 percent.

R = Expected return - 1.5(Interest rate surprise) + 2(GDP surprise) + Company-specific surprise = 8% - 1.5(2%) + 2(-3%) + 1.5% = 0.5%

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