The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors:

Investment

b_{1: X = 1.75, Y = -1.00, Z = 2.00}

b_{2: X= 0, Y = 2.00, Z = 1.00}

We assume that the expected risk premium is 6.0% on factor 1 and 10.0% on factor 2. Treasury bills obviously offer zero risk premium.

a.According to the APT, what is the risk premium on each of the three stocks?(Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

Find Stocks Risk Premiums in percents for

X

Y

Z

b-1.Suppose you buy $360 of X and $90 of Y and sell $270 of Z. What is the sensitivity of your portfolio to each of the two factors?(Leave no cells blank, enter "0" wherever required. A negative answer should be indicated by a minus sign. Round your answers to 2 decimal places.)

Find the Sensitivity for:

Factor 1

Factor 2

b-2.What is the expected risk premium?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Find the Expected risk premium%

c-1.Suppose you buy $144 of X and $108 of Y and sell $72 of Z. What is the sensitivity of your portfolio to each of the two factors?(Do not round intermediate calculations. Round your answers to 2 decimal places.)

Find the Sensitivity for:

Factor 1

Factor 2

c-2.What is the expected risk premium?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Find the Expected risk premium%

d-1.Finally, suppose you buy $288 of X and $36 of Y and sell $144 of Z. What is your portfolio's sensitivity now to each of the two factors?(A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answersto 1 decimal place.)

Find the Sensitivity for:

Factor 1

Factor 2

d-2.What is the expected risk premium?(Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places.)

Find the Expected risk premium%