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A three factor APT has the following risk premiums (i.e. lambdas): RP1 = 3.3%, RP2 = 1.9%. At equilibrium, assets with no risk have expected
A three factor APT has the following risk premiums (i.e. lambdas): RP1 = 3.3%, RP2 = 1.9%. At equilibrium, assets with no risk have expected returns of 1.0%. You are forecasting that a particular asset with b1 = 0.3 and b2 = 1.4 could produce returns of 7.8%. By how many percentage points is this asset overvalued or undervalued? Write the difference as positive if the asset is undervalued and write the answer as a negative number if the asset is overvalued. Answer in percentage without the symbol
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