You have a well-diversified portfolio P. You believe that the return of P is exposed to 2 systematic risk factors, market risk (M) and exchange rate risk (X). The sensitivity of P's return to M is 1.2 and to X is 0.7. You have estimated the expected excess return of factors M and X are 7% and 3% respectively. According to APT, how much excess return should you expect on portfolio P? 11.5% O 10.5% O 13.5% O 12.5%

You have a well-diversified portfolio P. You believe that the return of P is exposed to 2 systematic risk factors, market risk (M) and exchange rate risk (X). The sensitivity of P's return to M is 1.2 and to X is 0.7. You have estimated the expected excess return of factors M and X are 7% and 3% respectively. According to APT, how much excess return should you expect on portfolio P? 11.5% O 10.5% O 13.5% O 12.5%

Financial Management: Theory & Practice

16th Edition

ISBN:9781337909730

Author:Brigham

Publisher:Brigham

Chapter6: Risk And Return

Section: Chapter Questions

Problem 14P: You have observed the following returns over time: Assume that the risk-free rate is 6% and the...

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