The expected return for exposure to aluminum commodity prices is 10%, and the firm has a beta relative to aluminum commodity prices of. 5. The expected return for exposure to GDP changes is 12%, and the firm has a beta relative to GDP of. 75. If the risk-free rate is 4%, what is the expected return on this stock?

18%

Explanation:

Data provided in the question:

Expected return for exposure to aluminum commodity prices = 10%

Risk-free rate = 4%

Beta of aluminum commodity prices = 0.5

Expected return for exposure to GDP changes = 12% = 0.12

Beta relative to GDP = 0.75

Now,

Expected return on this stock

= Risk-free rate + ∑ (Beta * Return)

= 4% + (0.5 * 10%) + (0.75 * 12%)

= 4% + 5% + 9%

= 18%