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3. Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of
3. Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of 3.5 %. (30 points)
Factors are ? | Market as factor 1 | Size as factor 2 | Book to market as factor3 |
Beta of portfolio? | 0.55 | 0.25 | -0.09 |
Risk premium for factors | 5% | 4% | 6% |
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