The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments...
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The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors: Investment b b2 X 1.75 0 Y -1.00 2.00 Z 2.00 1.00 We assume that the expected risk premium is 8.5% on factor 1 and 12.5% on factor 2. Treasury bills obviously offer zero risk premium. According b. Suppose you buy $560 of X and $140 of Y and sell $420 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? c. Suppose you buy $224 of X and $168 of Y and sell $112 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? d. Finally, suppose you buy $448 of X and $56 of Y and sell $224 of Z. What is your portfolio's sensitivity now to each of the two factors? And what is the expected risk premium? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Suppose you buy $560 of X and $140 of Y and sell $420 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? (Leave no cells blank, enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Sensitivity of Factor 1 Sensitivity of Factor 2 Expected risk premium 0 % < Required A Required C > Show less The following question illustrates the APT. Imagine that there are only two pervasive macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two factors: Investment b b2 X 1.75 0 Y -1.00 2.00 Z 2.00 1.00 We assume that the expected risk premium is 8.5% on factor 1 and 12.5% on factor 2. Treasury bills obviously offer zero risk premium. According b. Suppose you buy $560 of X and $140 of Y and sell $420 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? c. Suppose you buy $224 of X and $168 of Y and sell $112 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? d. Finally, suppose you buy $448 of X and $56 of Y and sell $224 of Z. What is your portfolio's sensitivity now to each of the two factors? And what is the expected risk premium? Complete this question by entering your answers in the tabs below. Required A Required B Required C Required D Suppose you buy $560 of X and $140 of Y and sell $420 of Z. What is the sensitivity of your portfolio to each of the two factors? What is the expected risk premium? (Leave no cells blank, enter "0" wherever required. A negative answer should be indicated by a minus sign. Do not round intermediate calculations. Round your answers to 2 decimal places.) Sensitivity of Factor 1 Sensitivity of Factor 2 Expected risk premium 0 % < Required A Required C > Show less
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