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2 November, 06:31

Semitool Corp. has an expected excess return of 6% for next year. However, for every unexpected 1% change in the market, Semitool's return responds by a factor of 1.2. Suppose it turns out that the economy and the stock market do better than expected by 1.5% and Semitool's products experience more rapid growth than anticipated, pushing up the stock price by another 1%. Based on this information, what was Semitool's actual excess return

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  1. 2 November, 06:41
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    8.8%

    Explanation:

    Given:

    Excess return = 6% = 0.06

    Return respond factor = 1.2

    Expected higher percent = 1.5% = 0.015

    Increase growth (stock price) = 1% = 0.01

    Actual excess return = ?

    Computation of actual excess return:

    Actual excess return = Excess return + Increase growth (stock price) + [Expected higher percent * Return respond factor]

    = 0.06 + 0.01 + [0.015 * 1.2]

    = 0.07 + [0.018]

    = 0.088

    = 8.8%
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