Suppose world described by 1-factor model (F), and we have 2 following securities TA= -0.050- 1.2F...
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Suppose world described by 1-factor model (F), and we have 2 following securities TA= -0.050- 1.2F + EA TB = 0.050 +0.8F + EB a. [2pts] What are the weights on each security A and B if we want to track the asset that has a loading of 0.5 on factor F? b. [3pts] What is the expected risk-free rate in this world? (Hint: construct the tracking portfolio that has zero loading on factor F) 1 c. [3pts] What is the expected return of factor F? (Hint: construct the tracking portfolio that has a loading of 1 on factor F) d. [1pt] Is there any arbitrage opportunity if expected return on asset, that has a loading of 0.5 on factor F, is 4.50%? Suppose world described by 1-factor model (F), and we have 2 following securities TA= -0.050- 1.2F + EA TB = 0.050 +0.8F + EB a. [2pts] What are the weights on each security A and B if we want to track the asset that has a loading of 0.5 on factor F? b. [3pts] What is the expected risk-free rate in this world? (Hint: construct the tracking portfolio that has zero loading on factor F) 1 c. [3pts] What is the expected return of factor F? (Hint: construct the tracking portfolio that has a loading of 1 on factor F) d. [1pt] Is there any arbitrage opportunity if expected return on asset, that has a loading of 0.5 on factor F, is 4.50%?
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Answer rating: 100% (QA)
a To have a loading of 05 on F we want wA12 wB08 05 So... View the full answer
Related Book For
Income Tax Fundamentals 2013
ISBN: 9781285586618
31st Edition
Authors: Gerald E. Whittenburg, Martha Altus Buller, Steven L Gill
Posted Date:
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