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BichNgan_Homework2.docx
1. ßG = 1.5 E(RG) = 18% εG = 8%
Last year, Glacier’s stock return was only 7%, while the change in GDP was 2.0%.
RG = 7% Actual GDP = 2.0%
RG = E(RG) + ßG*FGDP + εG
𝐹 =
RG − E(RG)− εG
ßG
=
7%−18%−8%
1.5
FGDP = -12.67%
FGDP = Actual GDP – Expected GDP
Expected GDP = Actual GDP – FGDP = 2.0% - (-12.67%)
Expected GDP = 14.67%
Therefore, The expected change in GDP at the beginning of last year was 14.67%.