Answered: Questions a. - c. refer to the…

Questions a. - c. refer to the following data. You estimate a 3-factor return-generating process for 5 large portfolios with the following results.

Algebra & Trigonometry with Analytic Geometry

13th Edition

ISBN:9781133382119

Author:Swokowski

Publisher:Swokowski

Chapter1: Fundamental Concepts Of Algebra

Section1.4: Fractional Expressions

Problem 65E

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Question

Questions a. - c. refer to the following data. You estimate a 3-factor return-generating process for 5 large portfolios with the following results.

a. Which two portfolios are functional equivalents according to the Arbitrage Pricing Theory?

b. What is the expected return on portfolio B?

c. Suppose that the market is currently pricing portfolio E so that its expected return is 8% and pricing portfolio B so that its expected return is 10%. Describe the forces that will bring about equilibrium according to the APT.

= 4+0.8r, +0.5r +6rp3
, =1+1.2r +0.5r, +6r3
r = -2+1.5r-0.5r, +8r
D = 2+1.5rm +0.7r +8r3
, = 7+1.2r, +0.5r, +6rp3
F1
%3D
Risk premiums are as follows:
1 = 3, 4 = 6, , = 3, and , = -0.5

Expression, rule, or law that gives the relationship between an independent variable and dependent variable. Some important types of functions are injective function, surjective function, polynomial function, and inverse function.

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