1) Suppose the SIM holds true, where the common factor is the gross national product: the following table contains annual returns for Stock F and annual percentage changes in the gross national product (I):

Suppose E(I) for year 6 is 4%, estimate E(RF) for the same year based on the historical returns.

2) Suppose there are three portfolios on the APT straight line with the following parameters:

What is the zero-beta rate (E(RZ)) and what is the risk premium (E(RI ) E(RZ))?

Year 1 1 1 2 3 4 5 R 10% 22% 18% -5% 12% 3% 2% -1% -2% 5% A B 8% Mean Beta Specific risk 4% 1 0 ON 12% 3 0 Year 1 1 1 2 3 4 5 R 10% 22% 18% -5% 12% 3% 2% -1% -2% 5% A B 8% Mean Beta Specific risk 4% 1 0 ON 12% 3 0