Suppose that a two-factor model, where the factors are the market return and the growth rate of industrial production, correctly describes the risk-return characteristics of all assets. Consider two well-diversified portfolios A, B, and C with the following characteristics. The risk-free rate is 5%. Portfolio Expected Return Sensitivity to Factor 1 Sensitivity to Factor 2 A 10% 1 -1 B 15% 0.5 1 ? 1 0.5 What is the APT-consistent expected rate of return on C? 12.5% O 17.5% O 2.5% O 7,5%
Suppose that a two-factor model, where the factors are the market return and the growth rate of industrial production, correctly describes the risk-return characteristics of all assets. Consider two well-diversified portfolios A, B, and C with the following characteristics. The risk-free rate is 5%. Portfolio Expected Return Sensitivity to Factor 1 Sensitivity to Factor 2 A 10% 1 -1 B 15% 0.5 1 ? 1 0.5 What is the APT-consistent expected rate of return on C? 12.5% O 17.5% O 2.5% O 7,5%
Intermediate Financial Management (MindTap Course List)
13th Edition
ISBN:9781337395083
Author:Eugene F. Brigham, Phillip R. Daves
Publisher:Eugene F. Brigham, Phillip R. Daves
Chapter3: Risk And Return: Part Ii
Section: Chapter Questions
Problem 2P: APT
An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-free...
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