Suppose an analyst examines expected returns for the American Broadcasting Corporation (ABC) based on a 2-factor model. Initially, the expected return for ABC equals 10%. The analyst identifies GDP and 10-year interest rates as the two factors for the factor model. Assume the following data is used:
  GDP growth consensus forecast = 7%
  Interest rate consensus forecast = 3%
  GDP factor beta for ABC = 1.50
  Interest rate factor beta for ABC = -1.00
  Suppose GDP ends up growing 6% and the 10-year interest rate ends up equaling 5%. Also assume that during the period, the American Broadcasting Corporation unexpectedly experiences shortages of key inputs, causing its revenues to be less than originally expected. Consequently, the firm-specific return is -1% during the period. Using the 2-factor model with the revised data, which of the following expected returns for ABC is correct?
  A.     1.5%.
  B.     3.5%.
  C.     5.5%.
  D.     6.5%.