8. (10 POINTS) Consider a 2 factor model. The following table contains the expected rate of...

 

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8. (10 POINTS) Consider a 2 factor model. The following table contains the expected rate of return of each asset (ErA = 0.40 and ErB = 0.26) as well as the sensitivity for each asset with respect to each factor, that is 1A = 1.5,81B = 2.2, 3₂A = 2 and B₂B. = -0.2. The risk-free rate, rf, is rf = 0.06 Portfolio Bi B₂i Eri A 1.2 2 0.4 B 3.2 -0.8 0.26 Find the risk premium for each of the 2 factors, F₁ and F₂ 8. (10 POINTS) Consider a 2 factor model. The following table contains the expected rate of return of each asset (ErA = 0.40 and ErB = 0.26) as well as the sensitivity for each asset with respect to each factor, that is 1A = 1.5,81B = 2.2, 3₂A = 2 and B₂B. = -0.2. The risk-free rate, rf, is rf = 0.06 Portfolio Bi B₂i Eri A 1.2 2 0.4 B 3.2 -0.8 0.26 Find the risk premium for each of the 2 factors, F₁ and F₂

Answer rating: 100% (QA)

To find the risk premium for each of the two factors F and F we can use the Capital Asset Pricing Mo... View the full answer