Question: Compute the required return (in APT model) on security s and T using the information from the following table: 11. (1o Points) Correlation with 0.93

Compute the required return (in APT model) on security s and T using the information from the following table: 11. (1o Points) Correlation with 0.93 0.780.53 0.82 Portfolio Portfolio Return Factor 1 Factor 2 0.29.- 13% 22% 9% 18% 5% 396 11% 0.18 0.15 0.00 o.00 0.910.00 0.00 Beta Beta 1.19 1.59 Security 1.11 Note: For each factor, select the portfolio with highest correlation as factor portfolio in calculating factor risk premium. Use the return on the portfolio with zero correlation with both factors for Yo 0.29 12. Draw the yield curve when short-term and long-term rates are low and intermediate-term rates are high. Explain the shape of this yield curve using appropriate theory of yield curve. There is ONLY one theory behind this. Do not describe any irrelevant theory or theories. (7 points)

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