Suppose that asset returns are generated by a 2-factor risk model. As a fund manager, you...

 

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Suppose that asset returns are generated by a 2-factor risk model. As a fund manager, you are offering two funds, A and B, with the following returns: TATA bA1 f1 + ba2 f2 TB TB+bB1 f1 +bB2 f2 where f1 and f2 are the two independent risk factors with zero mean. Fund characteristics are given by the following: Asset T b A 14 1 .5 B 13 .5 1 Factor fi is the abnormal return on the market portfolio (market return minus its mean). The risk-free rate is 2.75%. Use the above information to find the factor premia for the two factors. Suppose that asset returns are generated by a 2-factor risk model. As a fund manager, you are offering two funds, A and B, with the following returns: TATA bA1 f1 + ba2 f2 TB TB+bB1 f1 +bB2 f2 where f1 and f2 are the two independent risk factors with zero mean. Fund characteristics are given by the following: Asset T b A 14 1 .5 B 13 .5 1 Factor fi is the abnormal return on the market portfolio (market return minus its mean). The risk-free rate is 2.75%. Use the above information to find the factor premia for the two factors.