=4/Your portfolio has a of 1.2, the no-risk cash rate is 5.6% and the risk premium
Question:
=4/Your portfolio has a β of 1.2, the no-risk cash rate is 5.6% and the risk premium is 3%.
In this chapter you learned about the APT and were told that the two V factors are growth of GDP and unanticipated inflation. The equation for the model is: rj = 5.6% +
bj1 × 2% + bj2 × 5%. Suppose that the sensitivity of your portfolio to GDP growth is
−0.4, what is your portfolio’s sensitivity to unanticipated inflation? You believe that a recession is looming and you wish to eliminate your portfolio’s sensitivity to GDP growth but you still want to get the returns you expected. What happens to your portfolio’s sensitivity to unanticipated inflation?
Step by Step Answer:
Corporate Finance Theory And Practice
ISBN: 9781118849330
4th Edition
Authors: Pierre Vernimmen, Pascal Quiry, Maurizio Dallocchio, Yann Le Fur, Antonio Salvi