The UK is found to have two factors, GDP growth and the inflation rate, that generate the returns of all equities. The e

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The UK is found to have two factors, GDP growth and the
inflation rate, that generate the returns of all equities. The
expected GDP growth rate in the next year is 2 per cent and the
expected inflation rate is 1.5 per cent. Pinto plc has an expected
return of 10 per cent, a GDP growth rate factor loading of 1.6 and
an inflation rate factor loading of –0.5. If the actual GDP growth
rate turns out to be 3 per cent and inflation is 2.3 per cent, what
is your estimate of the expected return on Pinto plc?