What rates of return rational investors using APT model would demand on security R and Q...

 

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What rates of return rational investors using APT model would demand on security R and Q given the following information? Which security has higher rate of return and explain why. Portfolio A B C D E F Z Security R Q Portfolio Return 23% 12% 11% 17% 5% 1% 4% Correlation with Factor 1 0.29 0.78 0.08 0.89 0.18 0.00 0.00 Beta 1.78 0.59 Factor 2 0.77 0.91 0.17 0.79 0.00 0.50 0.00 Beta .85 1.37 What rates of return rational investors using APT model would demand on security R and Q given the following information? Which security has higher rate of return and explain why. Portfolio A B C D E F Z Security R Q Portfolio Return 23% 12% 11% 17% 5% 1% 4% Correlation with Factor 1 0.29 0.78 0.08 0.89 0.18 0.00 0.00 Beta 1.78 0.59 Factor 2 0.77 0.91 0.17 0.79 0.00 0.50 0.00 Beta .85 1.37

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SOLUTION To determine the rates of return demanded by rational investors using the APT model we need ... View the full answer