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Suppose that there are two independent economic factors, GDP and Employment. The risk-free rate is 5% and all stocks have independent firm-specific components with a
Suppose that there are two independent economic factors, GDP and Employment. The risk-free rate is 5% and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios. Expected Return Beta on Beta on GDP Portfolio Employment factor Factor IA 1.5 2.0 B. 2.2 -0.2 33% 24% The resulting APT Equation is of the form: Eri] = rf + BGDPFGDP + BEmpF Emp ' What is the value of the Employment Factor? (That is, FEmp)
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