Consider the three factor APT model Factor Risk Premium Change in GNP 5% Change in energy prices -1 Change in long-term interest rates +2 Calculate the expected rate of return on the following stocks....

Consider the three factor APT model

Factor                                                      Risk Premium
Change in GNP                                                  5%

Change in energy prices                                      -1

Change in long-term interest rates                        +2

Calculate the expected rate of return on the following stocks. The risk free interest rate is 7%.

Required:

1. A stock whose return is uncorrelated with all three factors

2. A stock with average exposure to each factor (i.e., with b = 1 for each)

3. A pure play energy stock with high exposure to the energy factor (b=2) but zero exposure to the other two factors