Question: Q22 Consider the multifactor model with two factors. Stock A has an expected return of 26.90%, a beta of 1.43 on factor 1 and a

Q22

Consider the multifactor model with two factors. Stock A has an expected return of 26.90%, a beta of 1.43 on factor 1 and a beta of 0.89 on factor 2. The risk premium on the factor 1 portfolio is 5.7%. The risk-free rate of return is 8.2%. Assume that Stock B has a beta of 1.09 on factor 1 and a beta of 2.05 on factor 2.

Which of the following is the closest to the expected return on Stock B if no arbitrage opportunities exist?

Select one:

a. 37.46%

b. 36.29%

c. 53.09%

d. 56.26%

e. 38.71%

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!

w'w'w'w'w'w'w'w'w'w Consider the multifactor model with two factors. Stock A has an expected return of 26.40%, a beta of 1.29 on factor 1 and a beta of 0.74 on factor 2. The risk premium on the...

Consider the multifactor APT with two factors. Stock A has an expected return of28.7%, a beta of 1.16 on factor1, and a beta of 0.67 on factor 2. The risk premium on the factor 1 portfolio is2.7%....

I can't seem to get any answers, please help asap! Problem Set #7 1. (a) (b) (c) (d) In a multifactor APT model, the coefficients on the macro factors are often called: systemic risk. firm-specific...

Untitled 2 1. In a multifactor APT model, the coefficients on the macro factors are often called: (a) systemic risk. (b) firm-specific risk. (c) idiosyncratic risk. (d) factor betas. 2. Consider the...

1. What is the relevant measure of risk in the context of the Capital Asset Pricing Model (CAPM)? 2. According to the Capital Asset Pricing Model (CAPM), what is a well diversified portfolio's rate...

1) Consider the one-factor APT. The standard deviation of returns on a well-diversified portfolio is 18%. The standard deviation on the factor portfolio is 16%. What is the beta of the...

Consider the multifactor APT with two factors. Stock A has an expected return of 16.4%, a beta of 1.4 on factor 1 and a beta of .8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The...

Consider the multifactor APT with two factors. Stock A has an expected return of 14.20%, a beta of 1.2 on factor 1, and a beta of 0.6 on factor 2. The risk premium on the factor 1 portfolio is 4.00%....

11) Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.75 on factor 1, and a beta of .86 on factor 2. The risk premium on the factor 1 portfolio is...

Consider the multifactor APT with two factors. Stock A has an expected return of 19.70%, a beta of 1.2 on factor 1, and a beta of 0.6 on factor 2. The risk premium on the factor 1 portfolio is 4.00%....

What measurement issues might arise in determining the amount of revenue to be recognized?

Read the following and answer the question: Based on Reed Hospital Break Even Analysis, answer the following questions: 1. Although you are basically satisfied with the analysis presented in the...

5. Determine the amount of conversion cost in the following list of costs. a. Direct material, $25,000. b. Direct labor, $35,000. c. Manufacturing overhead, $45,000. d. Selling expenses, $10,000. e....

You just inherited a trust that will pay you $200,000 per year in perpetuity. However, the first payment will not occur for exactly three more years. Assuming a 8.5% annual interest rate, what is the...

=+ 3. The residents of a certain dormitory have collected the following data: People who live in the dorm can be classifi ed as either involved in a relationship or uninvolved. Among involved

=+that if unemployment is above the natural rate, unemployment falls, and if unemployment is below the natural rate, unemployment rises.)

=+ b. From your estimates, calculate (in a rate per week) your rate of job fi nding f and your rate of job separation s. (Hint: If f is the rate of job fi nding, then the average spell of...