Question
There are two assets following single-factor model, Asset 1 and Asset 2. Their model parameters are given as follow, Asset i i 1 0.10 1.5
There are two assets following single-factor model, Asset 1 and Asset 2. Their model parameters are given as follow,
| Asset | i | i |
| 1 | 0.10 | 1.5 |
| 2 | 0.08 | 0.5 |
Assume E[f]=e1=e2=0.
a) Construct a zero-beta portfolio from these two risky assets.
b) Find the factor risk premium using the principle of no-arbitrage.
c) What is the meaning of factor risk premium in single-factor models?
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Foundations Of Financial Management
Authors: Stanley B. Block, Geoffrey A. Hirt, Bartley R. Danielsen
13th Edition
0073382388, 978-0073382388
