Answer the following 3 question using the information below. You have a well-diversified portfolio P. You believe that the return of P is exposed to 2 systematic risk factors, market risk (M) and exchange rate risk (X). The sensitivity of P's return to M is 1.2 and to X is 0.7. You have estimated the expected excess return of factors M and X are 7% and 3% respectively. According to APT, how much excess return should you expect on portfolio P? O 11.5% O 12.5% O 10.5% O 13.5% QUESTION 15 If your analysis shows that portfolio P's expected excess return is 13%, how much is mispricing (a)? 0 -1.5% O 2.5% 0 -2.5% O 1.5% QUESTION 16 Let's assume that there is portfolio PM that has unit sensitivity to factor M and zero sensitivity to factor X. Its expected excess return is 7%. Let's also assume that there is portfolio PX that has unit sensitivity to factor X and zero sensitivity to factor M. Its expected excess return is 3%. I combine P, PM, PX and risk-free with weights 1,-1.2,-0.7 and 0.9 respectively, and make portfolio A. Which statement is FALSE about A? O A has 0% expected return. O A is an arbitrage portfolio O A is a zero initial investment portfolio O A has 0 sesitivity (beta) to factor M. QUESTION 17 Which statement is TRUE? o If you have n indepenednet investments where n is large number, you can create a portfolio for which the total risk is almost zero. Systematic risk can be diversified away therefore you don't get compensated for it. Idiosyncratic risk can be diversified away therefore you get compensated for it. Combining inuoctmonte that are nocitival correlated does not nrovide an diversification honofit