Answered step by step
Verified Expert Solution
Question
1 Approved Answer
Assuming a two-factor APT world where the systematic risks are GDP risk and Oil risk, risk-free rate is 2%. Assume there exists GDP and Oil
Assuming a two-factor APT world where the systematic risks are GDP risk and Oil risk, risk-free rate is 2%. Assume there exists GDP and Oil factor portfolios that are tradeable. If a trader estimates the expected return of Portfolio ABC to be 17.0%, the alpha of Portfolio ABC is _______?
| Portfolio ABC | Factor Loading | Risk Premium |
| GDP | 0.8 | 5% |
| Oil | 1.5 | 7% |
| -0.5% | ||
| 0.5% | ||
| 1.0% | ||
| 1.5% | ||
| 2.0% |
Step by Step Solution
There are 3 Steps involved in it
Step: 1
Get Instant Access to Expert-Tailored Solutions
See step-by-step solutions with expert insights and AI powered tools for academic success
Step: 2
Step: 3
Ace Your Homework with AI
Get the answers you need in no time with our AI-driven, step-by-step assistance
Get Started
