Question: Exercise 14.5.7. Assume a two-factor model with = 0.15 0.00 0.05 0.00 0.20 0.01 0.05 0.01 0.05 and B =

Exercise 14.5.7. Assume a two-factor model with

Σ =

⎡

⎣

0.15 0.00 0.05 0.00 0.20 −0.01 0.05 −0.01 0.05

⎤

⎦

and B =

0.3 0.2 0.1 0.2 −0.3 0.1

.

What isΨ? What are the communalities?

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