Question: 1) Consider the multi-factor APT model with two-factors. The risk premium on factor 1 and 2 portfolios are 8% and 3% respectively. Stock A has

1) Consider the multi-factor APT model with two-factors. The risk premium on factor 1 and 2 portfolios are 8% and 3% respectively. Stock A has a beta of 1.3 on factor 1 and a beta of 0.7 on factor 2. The expected return on Stock A is 14%. If no arbitrage opportunities exist, the risk free rate is

a. 14%

b. 3.5%

c. 2.5%

d. 1.5%

Step by Step Solution

There are 3 Steps involved in it

1 Expert Approved Answer

Step: 1 Unlock blur-text-image

Question Has Been Solved by an Expert!

Get step-by-step solutions from verified subject matter experts

Step: 2 Unlock

Step: 3 Unlock

Students Have Also Explored These Related Finance Questions!

A) The following are the details of the three stocks X Y Z Mean Return 15% ? 25% Beta 1 3 2 What should the mean return of stck Y so that there are no arbitrage opportunities in the market? a. 40% b....

Futures prices are prices agreed to at a future delivery date, to be paid today. /_\\ '\\_/' True /_\\ I\\_/I False Question 5 {3 points) _II The weak form postulates that the market prices fully...

ASAP Pls Consider the multifactor APT with two factors. The risk premiums on factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1 , and a beta of 0.7 on...

vi . Consider the multifactor APT with two factors. The risk premiums on factor 1 and factor 2 portfolios are 5 % and 6 % , respectively. Stock A has a beta of 1 . 2 on factor 1 , and a beta of 0 . 7...

Consider the multifactor APT with two factors. The risk premiums on factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1 , and a beta of 0.7 on factor 2...

1)Consider the multifactor APT with two factors. The risk premium on the factor 1 portfolio is 3%. The risk-free rate of return is 6%. The risk-premium on factor 2 is 7.75%. Suppose that a security A...

Consider the multi-factor APT with two factors. The risk premia on factor 1 and factor 2 are 5% and 3%, respectively. Portfolio A has a beta of 1.4 on factor 1, and a beta of 0.5 on factor 2. The...

Consider the following multifactor (APT) model of security returns for a particular stock. Facto r Risk Factor Factor Beta Premium Inflation 1.3 696 Industrial production 0.8 8 Oil prices 0.5 5 a. If...

15. (3 points) Consider the multifactor APT model with two factors. Portfolio A has a beta of.5 on factor one and a beta of 1.25 on factor two. The risk premiums on the factor one and two portfolios...

#1 Farma and French argued a Small-Minus-Big factors portfolio mimics the macroeconomic risk factor by capturing the effect of business cycle because bigger stocks are more sensitive to business...

On May 1, 2022, Bruce Zoolander entered into a lease agreement to operate a retail store that was owned by Blue Bull Energy Company (BBE). The store sells consumer energy products such as branded...

The following set of cash flows changes sign twice and has two IRR solutions. Identify the sign changes. Demonstrate mathematically that 25% and 400% are both solutions to the IRR equation. On the...

Student Loans In this section, you must address the following questions: Assume that you're taking a student loan of $50,000 at an interest rate of 8%, and that you will start paying that loan back...

The scope of an internal audit is initially defined by the: Multiple Choice Audit program. Preliminary survey. Audit objectives. Scheduling and time estimates