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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
- Construct a portfolio out of stocks A and B which is riskless in terms of factor 2. How sensitive is this portfolio to factor 1 (that is, how many units of factor 1 risk)?
- What are the risk premia for factor 1 and 2 risk, respectively? In other words, what are 1 and 2?
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Financial and Management Accounting
Authors: Pauline Weetman
7th edition
1292086599, 978-1292086590
