Question
Your goal is to use the three-factor model, such as Fama and French. Suppose, the expected return on the portfolio mimicking HML factor is: and
Your goal is to use the three-factor model, such as Fama and French. Suppose, the expected return on the portfolio mimicking HML factor is: and the expected return on the portfolio mimicking the SMB factor is: . The expected return on S&P 500 index is 10% and risk free rate is . You already constructed Portfolio A with . Construct another portfolio, Q, by investing 60% of your wealth in Portfolio A and 40% in the risk free asset.
1.What are the factor sensitivities of Portfolio Q?
2.What is the expected return on Portfolio Q?
FORMULA DID NOT PASTE. PLEASE SEE PICTURE
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Quantitative Investment Analysis
Authors: Richard A. DeFusco, Dennis W. McLeavey, Jerald E. Pinto, David E. Runkle
3rd edition
111910422X, 978-1119104544, 1119104548, 978-1119104223
