The returns in an investment universe are drive by two linear factors, A and B. Investors...
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The returns in an investment universe are drive by two linear factors, A and B. Investors typically assume that the APT model holds in this market. There are three stocks traded in this market, each with an expected return and factor exposure as presented in the table below. There is also a risk-free asset F. Apple Pie Juice E[r] 11.0% 13.0% 10.5% Factor A 1.3 1 0.5 Factor B 0.5 4 a. Calculate the risk-free rate of return and the risk premium for each of these three factors. The returns in an investment universe are drive by two linear factors, A and B. Investors typically assume that the APT model holds in this market. There are three stocks traded in this market, each with an expected return and factor exposure as presented in the table below. There is also a risk-free asset F. Apple Pie Juice E[r] 11.0% 13.0% 10.5% Factor A 1.3 1 0.5 Factor B 0.5 4 a. Calculate the risk-free rate of return and the risk premium for each of these three factors.
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