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Consider a three-factor APT model with self-financing factors. The table below provides the expected return for each of the factors, the beta of Stock A
Consider a three-factor APT model with self-financing factors. The table below provides the expected return for each of the factors, the beta of Stock A with each of the factors, and the beta of Stock B with each of the factors. The risk- free rate is 2.7%. Use this model to estimate the expected return on a portfolio with equal investments in Stock A and Stock B. Factor Expected Return Beta for A Beta for B F1 7.5% -0.37 0.21 F2 5.6% 0.40 -0.31 F3 4.6% 0.77 1.06 6.20% 5.12% 5.84% 6.56% 5.48%
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