1. In the APT model, what is the nonsystematic standard deviation of an equally-weighted, well diversified portfolio of 90 securities that has an average value (across securities) of nonsystematic standard deviation, (e_i), equal to 22%? (Round your answer to 2 decimal places.)

A= ?

2. Suppose that the market can be described by the following three sources of systematic risk with associated risk premiums.

Factor	Risk Premium
Industrial production (I)	8%
Interest rates (R)	5%
Consumer confidence (C)	6%

The return on a particular stock is generated according to the following equation:

r= 18% + 0.8I + 0.4R + 0.60C + e

a-1. Find the equilibrium rate of return on this stock using the APT. The T-bill rate is 7%. (Do not round intermediate calculations. Round your answer to 1 decimal place.)

A=?

3. Assume that there are three stocks, A, B, and C, and that you can either invest in these stocks or short sell them. There are also three possible states of nature for economic growth in the upcoming year: strong, moderate, or weak. The returns for the upcoming year on stocks A, B, and C for each of these states of nature are given below:

	State of Nature
Stock	Strong Growth		Moderate Growth		Weak Growth
A	37%		13.50%		8%
B	31%		12.00%		4%
C	33%		25.00%		6%

If you invested in an equally weighted portfolio of stocks A and C, what is your portfolio return if economic growth is moderate? (Round your answer to 2 decimal places.)

A=?