1.3 Estimates:

Question:

Intercept Mkt-RF SMB HML MTM CL 0.00 0.63 (0.60) (0.07) 0.21 BAC (0.00) 1.47 0.74 1.13 (0.23) AMAT 0.01 1.46 0.87 (0.20) (0.43) HOG (0.00) 0.93 0.75 (0.19) (0.24) XOM (0.00) 0.76 (0.27) 0.83 (0.01) LMT 0.01 0.69 (0.25) (0.11) 0.36 Adj. R Square 34.8% 43.4% 54.9% 31.8% 48.9% 32.1% 1.4 Using the Excel Solver and the estimates from (1.3), compute the set of weights required to form a portfolio from the six stocks that has zero factor risk, an expected alpha of 1% per month, and satisfies the full investment constraint (weights sum to one). This portfolio is an arbitrage portfolio as it is expected to generate alpha without any risk exposure. Include a screen shot of the Solver Dialog box you used to solve for the portfolio weights (4 points). Intercept Mkt-RF SMB HML MTM CL 0.00 0.63 (0.60) (0.07) 0.21 BAC (0.00) 1.47 0.74 1.13 (0.23) AMAT 0.01 1.46 0.87 (0.20) (0.43) HOG (0.00) 0.93 0.75 (0.19) (0.24) XOM (0.00) 0.76 (0.27) 0.83 (0.01) LMT 0.01 0.69 (0.25) (0.11) 0.36 Adj. R Square 34.8% 43.4% 54.9% 31.8% 48.9% 32.1% 1.4 Using the Excel Solver and the estimates from (1.3), compute the set of weights required to form a portfolio from the six stocks that has zero factor risk, an expected alpha of 1% per month, and satisfies the full investment constraint (weights sum to one). This portfolio is an arbitrage portfolio as it is expected to generate alpha without any risk exposure. Include a screen shot of the Solver Dialog box you used to solve for the portfolio weights (4 points)