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Your Company, manager of the Gigantic Mutual Fund, knows that her fund currently is well diversified and that it has a CAPM beta of 1.0
Your Company, manager of the Gigantic Mutual Fund, knows that her fund currently is well diversified and that it has a CAPM beta of 1.0 The risk-free rate is 8% and the CAPM risk premium of 6.2%. She has been learning about measures of risk and knows that there are at least) two factors: changes in industrial production index, 6, and unexpected inflation, & The APT equation is E(R) - R = [51 - Rt]bia + [S2-RfIbiz, E(R) = 0.08 + [0.05]bia + (0.11]biz- Required 1. If she rebalances her portfolio to keep the same expected return but reduce her exposure to inflation to zero (i.e., bi,= 0) what will its sensitivity to the first factor become
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