Let , denote the return of asset i, i = 1,2. Suppose these two assets satisfy...
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Let , denote the return of asset i, i = 1,2. Suppose these two assets satisfy a one-factor model: F₁ = E[F] + B₁f + where is the factor value, and ₁ = 1,3₂ = -1,E[f] = E[e₁] = E[2] = 0. Cov(f.è₁) = Cov(1,₂)= Cov(₁,₂)=0. Assume that Var (f) = 62 > 0, Var(₁) = Var(₂) = 0² > 0. Let = 1 + (17)2 for some constanty (0, 1). (20 points) (a.) Find y such that F₁ and satisfy a zero-factor model: 7₁ = E[₁] + ū₁ F₂=E[₂] +u₂ where E[₁] Eu₂] = Cov(u₁, ₂) = 0. (10 points) (b.) Assume that the APT pricing in the one-factor model for 7₁ and 7₂ holds with factor risk premium A, and that the APT pricing in the zero-factor model in (a.) for F, and holds for the value of in (a.). Find the value of the factor risk premium A. (10 points) also = Let , denote the return of asset i, i = 1,2. Suppose these two assets satisfy a one-factor model: F₁ = E[F] + B₁f + where is the factor value, and ₁ = 1,3₂ = -1,E[f] = E[e₁] = E[2] = 0. Cov(f.è₁) = Cov(1,₂)= Cov(₁,₂)=0. Assume that Var (f) = 62 > 0, Var(₁) = Var(₂) = 0² > 0. Let = 1 + (17)2 for some constanty (0, 1). (20 points) (a.) Find y such that F₁ and satisfy a zero-factor model: 7₁ = E[₁] + ū₁ F₂=E[₂] +u₂ where E[₁] Eu₂] = Cov(u₁, ₂) = 0. (10 points) (b.) Assume that the APT pricing in the one-factor model for 7₁ and 7₂ holds with factor risk premium A, and that the APT pricing in the zero-factor model in (a.) for F, and holds for the value of in (a.). Find the value of the factor risk premium A. (10 points) also =
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Related Book For
Microeconomics An Intuitive Approach with Calculus
ISBN: 978-0538453257
1st edition
Authors: Thomas Nechyba
Posted Date:
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