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Assume that the APT holds for the following two stocks. Stock A: rA,t = 9 + 4F1,t + 2F2,t + eA,t Stock B: rB,t =
Assume that the APT holds for the following two stocks.
Stock A: rA,t = 9 + 4F1,t + 2F2,t + eA,t
Stock B: rB,t = 7 + 1F1,t + 4F2,t + eB,t
Riskfree: rf = 1
What are the risk premia for factor 1 and 2 risk, respectively? In other words, what are 1 and 2?
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