Question: Consider the following simplified APT model: Factor Expected Risk Premium (%) Market 6.6 Interest rate 0.4 Yield spread 5.2 Factor Risk Exposures Market Interest Rate

Consider the following simplified APT model:

Factor Expected Risk Premium (%)
Market 6.6
Interest rate 0.4
Yield spread 5.2

Factor Risk Exposures
Market Interest Rate Yield Spread
Stock (b1) (b2) (b3)
P 0.6 1.6 0.5
P2 1.3 0 0.3
P3 0.3 1.7 1.0

Calculate the expected return for each of the stocks shown in the table above. Assume rf = 4.6%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.)

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!