Suppose that two factors have been identified for the U. S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 4%, and IR 2.0%. A stock with a beta of 2.5 on IP and 1.8 on IR currently is expected to provide a rate of return of 12%. If industrial production actually grows by 6%, while the inflation rate turns out to be 5.5%, what is your revised estimate of the expected rate of return on the stock

23.3%

Explanation:

Expected return refers to the anticipated profit or loss of financial investment. Essentially, it's the value of the return that investors anticipate. We can find the expected return by using the formula given below

Δ IR = 5-5% - 2% = 3.5%

Δ IP = 6% - 4% = 2%

Formula

Expected return = Expectedreturn(previous year) + (betaIP x Δ IP) + (betaIR x Δ IR)

Expected return = 12% + (2.5 x 2%) + (1.8 x 3.5%)

Expected return = 23.3%

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urban company reports the following information regarding its production cost: units produced 37,000 units direct labor $ 30 per unit direct materials $ 35 per unit variable overhead $ 237,000 in total fixed overhead $ 127,000 in total