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 2%, and IR 5.0%.
A stock with a beta of 0.8 on IP and 0.4 on IR currently is expected to provide a rate of return of 11%.
If industrial production actually grows by 5%, while the inflation rate turns out to be 6.0%, what is your revised estimate of the expected rate of return on the stock?