BDO is exposed to the ff

Subject:FinancePrice: Bought3

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BDO is exposed to the ff. risks

Foreign exchange rate

Debtors’ ability to pay

Interest rate movement

Household consumption level

High ratio of older personnel or management during COVID

Number of labor force who were layoff during the period

The level of exposure of this bank to 3 systematic factors are 0.50, 0.65, and 0.70. This is a blue-chip company which is include in the PSEi and a reasonable assessment of its sensitivity is to use the 10/31/2019 – 10/31/2020 data. The government on-the-run bond has interest earning of 3.5%

1. With the listed risks, identify the systematic risks from unsystematic risks.
2. Using the identified systematic risks calculate the expected return of BDO stock using Arbitrage Pricing Model.
3. Extract the needed data and calculate beta.
4. Calculate the CAPM rate of return of the BDO stock. If 10/31/2019 price is P97.00 and the 10/31/2020 price is P89.00. Is it undervalued, overvalued or fairly valued?