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Consider a factor model with three factors. Suppose that the factor premiums for the factors are 0.002,0.001, and 0.0025, respectively, and that the value of
Consider a factor model with three factors. Suppose that the factor premiums for the factors are 0.002,0.001, and 0.0025, respectively, and that the value of in the equation for the expected return on an asset is 0.005.
Suppose that a given asset has factor sensitivities 1=1.0,2=0.75, and 3=0.10.
Find the expected return on the asset.
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