a and b please Assume the APT equation holds for three factors as follows:• SMB with a factor beta of 0.9 with a factor risk premium of 6%.• HML with a factor beta of 0.8 with a factor risk premium of 7%.⚫ MOM with a factor beta of 0.4 with a factor risk premium of 4%.Assume the following:⚫ The risk free rate is 5%• A project requires an investment at t = 0 of 250.• Expected Cash Flows of 100 eventuate at t = 1.Expected Cash Flows grow at 6% annually until t = 5.At t = 5 the project is shut down.There are no taxes or shut down costs.Answer the following:(a) Using the APT, what is the expected return?(b) Using the expected return using the APT, what is the expected project NPV?

Given :Rf=5βSMB=0.9,RPSMB=6 βHML=0.8,RPHML=7 βMOM=0.4,RPMOM=4 Step 2: Part (a): Expected…

Answered: Assume the APT equation holds for three…

Essentials Of Investments

11th Edition

ISBN:9781260013924

Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.

Chapter1: Investments: Background And Issues

Section: Chapter Questions

Problem 1PS

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