Semitool Corp has an expected excess return of 6% for next year.However for every unexpected 1% change in the market,Semitool's return responds by a factor of 1.2.Suppose it turns out the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated,pushing up the stock price by another 1%.Based on this information what was Semitool's actual excess return?
A) 7.00%
B) 8.50%
C) 8.80%
D) 9.25%

Question

Quizplus · Accepted Answer

The actual excess return can be calculated using the formula: 
Actual excess return = expected excess return + (unexpected market change * factor) + (unexpected product growth * factor)

Substituting the given values: 
Actual excess return = 6% + (1.5% * 1.2) + (1% * 1.2) 
Actual excess return = 6% + 1.8% + 1.2% 
Actual excess return = 8.8%

Therefore, the answer is option (C) 8.8%.

Semitool Corp Has an Expected Excess Return of 6% for Next