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	b1	b2
X	1.75	0
Y	1.00	2.00
Z	2.00	1.00

We assume that the expected risk premium is 8.2% on factor 1 and 12.2% 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.)

Stocks	Risk Premiums
X	%
Y	%
Z	%

b-1. Suppose you buy $540 of X and $135 of Y and sell $405 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.)

	Sensitivity
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.)

Expected risk premium %

c-1. Suppose you buy $216 of X and $162 of Y and sell $108 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.)

	Sensitivity
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.)

Expected risk premium %

d-1. Finally, suppose you buy $432 of X and $54 of Y and sell $216 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 answers to 1 decimal place.)

	Sensitivity
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.)

Expected risk premium %