Question: Consider the following simplified APT model: Factor Expected Risk Premium (%) Market 7.4 Interest rate 0.4 Yield spread 5.3 Factor Risk Exposures Market Interest Rate
Consider the following simplified APT model:
| Factor | Expected Risk Premium (%) |
| Market | 7.4 |
| Interest rate | 0.4 |
| Yield spread | 5.3 |
| Factor Risk Exposures | |||
| Market | Interest Rate | Yield Spread | |
| Stock | (b1) | (b2) | (b3) |
| P | 1.0 | 1.7 | 0.5 |
| P2 | 0.9 | 0 | 1.3 |
| P3 | 0.3 | 0.8 | 1.0 |
Consider a portfolio with equal investments in stocks P, P2, and P3. Assume rf = 3%.
a. What are the factor risk exposures for the portfolio? (A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 3 decimal places.)
Step by Step Solution
There are 3 Steps involved in it
1 Expert Approved Answer
Step: 1 Unlock
Question Has Been Solved by an Expert!
Get step-by-step solutions from verified subject matter experts
Step: 2 Unlock
Step: 3 Unlock
Study Help