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81.Based on a single-factor model, assume that the risk-free rate is 6% and the expected return on a portfolio with unit sensitivity to the factor
81.Based on a single-factor model, assume that the risk-free rate is 6% and the expected return on a portfolio with unit sensitivity to the factor is 8.5%.Consider a portfolio of two securities with the following characteristics:
SECURITY b(beta) SENSITIVITY PROPORTION
A 4.0 .30
B 2.6 .70
According to APT (Arbitrage Pricing Theory), what is the portfolio's equilibrium expected return?
I want to understand "expected return on a portfolio with unit sensitivity to the factor vs what if its not unit sensitivity, but some other sensitivity?"
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