Question
Consider the following simplified APT model: Factor Expected Risk Premium (%) Market 6.8 Interest rate 0.7 Yield spread 4.7 Factor Risk Exposures Market Interest Rate
Consider the following simplified APT model:
| Factor | Expected Risk Premium (%) |
| Market | 6.8 |
| Interest rate | 0.7 |
| Yield spread | 4.7 |
| Factor Risk Exposures | |||
| Market | Interest Rate | Yield Spread | |
| Stock | (b1) | (b2) | (b3) |
| P | 1.4 | 2.4 | 0.6 |
| P2 | 1.6 | 0 | 0.7 |
| P3 | 0.3 | 0.9 | 1.0 |
Consider a portfolio with equal investments in stocks P, P2, and P3. Assume rf = 5%.
a. What are the factor risk exposures for the portfolio? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 3 decimal places.)
b. What is the portfolios expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)
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
Corporate Finance Principles And Practice
Authors: Denzil Watson, Antony Head
5th Edition
0273725343, 978-0273725343
