Problem:
You have just regressed Rolls-Royce stock's annual excess returns to the market risk premium of the MCSI World Index and the FTSE100 (London stock exchange index). The data that you used was 10 years of annual data. The results of the regression line are as follows: [Hint: line equation is y = ax +b]
rRR = (0.51) rMCSI + 0.03
rRR = (1.21) rFTSE100 + 0.09
Requirement:
Question: If the MCIS World Index is expected to have zero returns (0.0%) of the next period, what is the expected return of Rolls-Royce over the same period?
Note: Please answer in proper manner and show all computations