Question
The table for this question is attached as a word document to this question. The question is a bit long but any kind of help
The table for this question is attached as a word document to this question. The question is a bit long but any kind of help answering it will be useful.
a.What is the equation of the APT? (.06, .075, .09)
b.What is the expected return on a portfolio of B ad C with zero sensitivity to factor 1?
c.Suppose there is a security, D, with sensitivity of zero to factor 1, and .2 to factor 2, and expected return of 9.675%, will you buy it? Why?
d.An investor believes that the expected returns above (table) come from the CAPM instead of the APT but agrees with the risk free rate estimated above. The analyst uses security B to demonstrate his point. What is his estimate of the market portfolio assuming beta of B is .8?
Suppose asset returns follow a 2-factor APT and you are given the following equilibrium expected rates of return: Security i A B C E(Ri) 6.6% 12.75% 9.9% Bi .2 .3 -.2 Bi2 -.1 .5 .6 a. What is the equation of the APT? (.06, .075, .09) b. What is the expected return on a portfolio of B ad C with zero sensitivity to factor 1? c. Suppose there is a security, D, with sensitivity of zero to factor 1, and .2 to factor 2, and expected return of 9.675%, will you buy it? Why? d. An investor believes that the expected returns above (table) come from the CAPM instead of the APT but agrees with the risk free rate estimated above. The analyst uses security B to demonstrate his point. What is his estimate of the market portfolio assuming beta of B is .8Step by Step Solution
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