Question: Suppose two asset returns are described by a two factor model, r1 = 0% + 1f1 + 1.812 + el 12 = -1% + 2f1

Suppose two asset returns are described by a two factor model,

Suppose two asset returns are described by a two factor model, r1 = 0% + 1f1 + 1.812 + el 12 = -1% + 2f1 + 0.572 + 2 where the volatility of first factor is 30%, the volatility of the second factor is 10%, and the correlation between the two factors is 0.5. Suppose also that the volatilities of the error terms ej and ez are both 10%. What is the covariance of r1 and 12 ? (Nearest 0.0001). Suppose two asset returns are described by a two factor model, r1 = 0% + 1f1 + 1.812 + el 12 = -1% + 2f1 + 0.572 + 2 where the volatility of first factor is 30%, the volatility of the second factor is 10%, and the correlation between the two factors is 0.5. Suppose also that the volatilities of the error terms ej and ez are both 10%. What is the covariance of r1 and 12 ? (Nearest 0.0001)

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!

Suppose two asset returns are described by a two factor model, r1 = 0% + 1f1 + 1.872 + el 12 = -1% + 2f1 + 0.572 + e2 where the volatility of first factor is 30%, the volatility of the second factor...

Suppose two asset returns are described by a two factor model, n = 0% +161 +1.812 + ej 2 = -1% + 24 +0.52 + 2 where the volatility of first factor is 30%, the volatility of the second factor is 10%,...

Question 4 0 out of 2 points Suppose under arbitrage pricing theory (APT), the mean asset returns are described as E{r} = 10+b111 +212 where by and b2 are factor loadings for two factors f1 and 12,...

The teaching on this in lecture wasn't very clear, please help! There is another question similar to this one, but the equations were incorrect. There are three assets with returns r1, r2, r3, whose...

How to do that Suppose under arbitrage pricing theory (APT), the mean asset returns are described as E{r} = 10+b111+212 = where by and b2 are factor loadings for two factors f and f2, and lo=3% is...

Suppose under arbitrage pricing theory (APT), the mean asset returns are described as EC) = 10+141+212 where by and by are factor loadings for two factors f1 and 12, and 10-2% is the risk free rate....

Hi again, I was hoping you can help with this investment management assignment. I am attaching the word document. It is 4 problems about asset management. Thank you for your help! Fin 6310 1. Assume...

Hi! I have a question I need help with on Arbitrage Pricing Theory. See attached pdf, I'm looking for the solution of question 6. Only question 6! Thanks so much! ECON 255 Problem Set 3 1. Real Cash...

Under a two factor model with APT, suppose that expected returns are described by E{r} = 3% + b111 + b2x5% Given two asset returns are described by r1 = 0% + 1f1 +372 + el 12 = 1% + 1f1 + 262 + 2...

Return Predictability along the Supply Chain F.AJ inancial Analysts Journal Volume 66 . Number 3 @2010 CFA Institute these two studies were based on the idea that the 2007, the last month for which...

Blossom, Incorporated, is a small company that manufactures three versions of patio tables. Unit information for its products follows: Sales price Direct materials Direct labor Variable manufacturing...

Determine Vo in the circuit in Fig. 2.80. Figure 2.80 For Prob. 2.16. 6 2 9 vt 3 V 0

Sadiqa needed to get two mortgages to buy their home 1 0 years ago. After making their regular monthly payments to both loans, the balance on the first mortgage is $ 1 5 5 , 2 7 5 and the balance on...

According to Fennell ( 1 9 9 9 ) , _ _ _ _ _ _ _ _ is a key principle in the process of community development. Group of answer choices civic pride leadership partnership collaboration

1. Research indicates that employee misconduct tends to increase in companies where mergers, acquisitions, and restructurings are under way. Why do you think this happens?

3. Most employees do not disclose the fraud and corruption they observe in the workplace, and, therefore, criminal and immoral behaviors continue to flourish. Who or what can intercept this lack of...

2. Do you think it is realistic to attempt to encourage a lifetime of customer patronage in todays uncertain business climate? Elaborate on your response.