Question
Suppose that a single factor APT holds. The risk-free rate is 4% and the expected return on a portfolio with unit sensitivity (sensitivity equal to
Suppose that a single factor APT holds. The risk-free rate is 4% and the expected return on a portfolio with unit sensitivity (sensitivity equal to 1) to the factor is 7%. Consider a portfolio of two securities with the following characteristics:
Security Sensitivity to the factor Proportion in the Portfolio
A 0.8 0.3
B 1.7 0.7
According to APT, what is the portfolio's equilibrium expected return?
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International Project Finance
Authors: Felix I. Lessambo
1st Edition
3030963896, 978-3030963897
