Question 5. (5 points) USE the information below for all 5 questions of this problem. ALL questions are independent. Assume that a three-factor APT describes the returns of all well- diversified portfolios, and that the three factors are unexpected changes in production (factor 1), a default spread factor (factor 2), and a Treasury term-spread factor (factor 3). Because of recent adverse events, over the next year, the market expects production to grow only by 1.5%, default spread to be 3.0%, and the term spread to be 1.8%. The pricing relationships for all well diversified portfolios are given by: E(r.) =0.05+B. *0.07+ B2 *0.05-B2 *0.04 All investors can borrow or lend at the risk free rate of 5%. Sigma(factori) = Sigma (factor2) = Sigma (factors) = 0.15. For simplicity, assume that the coefficient of correlation between any two factors is 0. The return process for portfolio A (which is well diversified) over the next year is: r=E(r.) +1.2f1 +0.5f2 -0.5f3 5.a. What is the expected return portfolio A? (1 point) expected return portfolio A PLEASE REPORT YOUR ANSWER HERE 5.6. What is the standard deviation of portfolio A? (1 point) PLEASE REPORT YOUR ANSWER HERE Standard deviation of portfolio A Question 5. (5 points) USE the information below for all 5 questions of this problem. ALL questions are independent. Assume that a three-factor APT describes the returns of all well- diversified portfolios, and that the three factors are unexpected changes in production (factor 1), a default spread factor (factor 2), and a Treasury term-spread factor (factor 3). Because of recent adverse events, over the next year, the market expects production to grow only by 1.5%, default spread to be 3.0%, and the term spread to be 1.8%. The pricing relationships for all well diversified portfolios are given by: E(r.) =0.05+B. *0.07+ B2 *0.05-B2 *0.04 All investors can borrow or lend at the risk free rate of 5%. Sigma(factori) = Sigma (factor2) = Sigma (factors) = 0.15. For simplicity, assume that the coefficient of correlation between any two factors is 0. The return process for portfolio A (which is well diversified) over the next year is: r=E(r.) +1.2f1 +0.5f2 -0.5f3 5.a. What is the expected return portfolio A? (1 point) expected return portfolio A PLEASE REPORT YOUR ANSWER HERE 5.6. What is the standard deviation of portfolio A? (1 point) PLEASE REPORT YOUR ANSWER HERE Standard deviation of portfolio A