Exhibit 7-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

Exhibit 7-9
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Stocks A, B, and C have two risk factors with the following beta coefficients. The zero-beta return (λ₀) = .025 and the risk premiums for the two factors are (λ₁) = .12 and (λ₀) = .10.
$\begin{array}{ccc}\text { Stock } & \text { Factor } 1 b_{i l} & \text { Factor } 2 b_{i 2} \\\hline \text { A } & -0.25 & 1.1 \\\text { B } & -0.05 & 0.9 \\\text { C } & 0.01 & 0.6\end{array}$
-Refer to Exhibit 7-9. Calculate the expected returns for stocks A, B, C. $\begin{array}{lccc} & \mathrm{A} & \mathrm{B} & \mathrm{C} \\\hline \text { I. } & 0.082 & 0.091 & 0.033 \\\text { II. } & 0.105 & 0.109 & 0.032 \\\text { III. } & 0.132 & 0.128 & 0.033 \\\text { IV. } & 0.165 & 0.121 & 0.032 \\\text { V. } & 0.850 & 0.850 & 0.610\end{array}$

A) I
B) II
C) III
D) IV
E) V