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Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%) 6.8 -0.7 4.7 Stock P p2 p3 Market (61)
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%) 6.8 -0.7 4.7 Stock P p2 p3 Market (61) 1.4 1.6 0.3 Factor Risk Exposures Interest Rate (62) -2.4 0 Yield Spread (63) -0.6 0.7 1.0 0.9 Consider a portfolio with equal investments in stocks P, P2, and P3. Assume = = 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.) Factor Risk Exposures Market (61) Interest rate (b2) Yield spread (53) b. What is the portfolio's expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.) Portfolio's expected return %
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