a. What are the factor loadings?

b. Determine the common factor prices using equilibrium APT model where the expected return on zero beta portfolio = 5%, E(R1) = 19%, and E(R2) = 23%

c. What must be the expected return for stock 3 at the equilibrium level?

d. Form a beta portfolio of the first 2 stocks that will be insensitive to factor 2, i.e. F2  

Assume the following:

R1t = E(R1) + F1 +2 F2 + e1t

R2t = E(R2) + F1 + 3F2 + e2t

R3t = E(R3) + 3F1 + F2+ e3t

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a What are the factor load ings ANS WER The factor load ings are the weights that each asset contrib... View the full answer