question You plan to purchase a company and wish to estimate the expected return on the company’s equity using a three-f

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question
You plan to purchase a company and wish to estimate the expected
return on the company’s equity using a three-factor model. You
believe the appropriate factors are the market return, the
percentage change in GNP and the oil price return. The market is
expected to grow by 6 per cent, GNP is expected to grow by 2 per
cent, and the oil price is expected to fall by 5 per cent. The
company has betas of 0.8, 0.3 and −0.1 for the market, GNP and oil
respectively. The expected rate of return on the equity is 15
percent. What is the revised expected return if the market falls by
8 per cent, GNP contracts by 0.3 per cent and the oil price grows
by 9 per cent?