Question
Suppose stock returns can be explained by the following three-factor model: R i = R F + 1 F 1 + 2 F 2 3
Suppose stock returns can be explained by the following three-factor model: |
Ri = RF + 1F1 + 2F2 3F3 |
Assume there is no firm-specific risk. The information for each stock is presented here: |
1 | 2 | 3 | |
---|---|---|---|
Stock A | 1.45 | .85 | .10 |
Stock B | .87 | 1.35 | .30 |
Stock C | .76 | .26 | 1.19 |
The risk premiums for the factors are 5.3 percent, 4.1 percent, and 5.9 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent invested in Stock B, and the remainder in Stock C. The risk-free rate is 3.2 percent. |
What is the expression for the return on your portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) |
What is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) |
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