Question: In the 3-factor APT world, what should be the expected return on a well-diversified portfolio A, i.e., E(r)? (1) 2%; (2) 3%; (3) 4%; (4)
In the 3-factor APT world, what should be the expected return on a well-diversified portfolio A, i.e., E(r)? (1) 2%; (2) 3%; (3) 4%; (4) 5%; (5) 6%; (6) 7%; (7) 8%; (8) 9%; (9) 10%; [Note: factor sensitivity of portfolio A with respect to each Factor, risk premium (or excess return) = E(R)=E(r.) -ry] E() B Riskfree(r) Factor 1 Factor 2 Factor 3 7% 8% 9% 0.54 0.14 0.69 3%
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