5 A Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT Assume risk free return of 3 5 (10 points) Factors are Market as factor 1 Size as factor 2 Book to market as factor3 Beta of portfolio 0 75 0 10 0 06 Risk premium for factors 4 2 6 5B Show your understanding of the role of the arbitrage pricing theory, APT, based on coverage in class, in the context of portfolio management That is, explain why you will benefit from allocating your portfolio in different investment styles (value, growth, size, momentum, market to book value), (5 Points)

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Question: 5.A Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of

5.A Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of 3.5 % (10 points).

Factors are	Market as factor 1	Size as factor 2	Book to market as factor3
Beta of portfolio	0.75	0.10	-0.06
Risk premium for factors	4%	2%	6%

5B. Show your understanding of the role of the arbitrage pricing theory, APT, based on coverage in class, in the context of portfolio management. That is, explain why you will benefit from allocating your portfolio in different investment styles (value, growth, size, momentum, market to book value), (5 Points).

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