EOC Problems $8-2$

Question $2$ of $15$

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Problem $2-$ APT Return

The estimated parameters of a four$-$factor APT model are: $R-R_{\text{f}\text{r}\text{e}\text{e}}=0\mathrm{.}7+(-0\mathrm{.}4)F_1+0\mathrm{.}2F_2+0\mathrm{.}5F_3+0\mathrm{.}1F_4$ Suppose that the risk free rate is $0\mathrm{.}04.$

$\backslash$table$[[$Alpha$,0\mathrm{.}7],[$b$1,-0\mathrm{.}4],[$b$2,0\mathrm{.}2],[$b$3,0\mathrm{.}5],[$b$4,0\mathrm{.}1],[$R$-$free,$0\mathrm{.}04]]$

A$)$ If $F_1=0\mathrm{.}3,F_2=-0\mathrm{.}2,F_3=0,$ and $F_4=0\mathrm{.}4,$ what should the return of the stock be$?$

The return should be

$\%.$ Round your answer to the nearest three decimal places.

B$)$ If $F_1=0\mathrm{.}3,F_2=0\mathrm{.}6,F_3=-0\mathrm{.}3,$ and $F_4=0\mathrm{.}4,$ what should the return of the stock be$?$

The return should be

$\%.$ Round your answer to the nearest three decimal places.

C$)$ If $F_1=-0\mathrm{.}3,F_2=0\mathrm{.}2,F_3=-0\mathrm{.}1,$ and $F_4=0\mathrm{.}5,$ what should the return of the stock be$?$

The return should be

$\%.$ Round your answer to the nearest three decimal places.