Question

Suppose stock returns can be explained by the following three-factor model: Ri = RF + β1F1...

Suppose stock returns can be explained by the following three-factor model:

Ri = RF + β1F1 + β2F2 − β3F3

Assume there is no firm-specific risk. The information for each stock is presented here:

β1 β2 β3
Stock A 1.13 .45 .08
Stock B .75 1.30 −.20
Stock C .66 −.12 1.19


The risk premiums for the factors are 6.1 percent, 5.4 percent, and 6.1 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 30 percent invested in Stock B, and the remainder in Stock C.

What is the expression for the return on your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)  

Factor Beta
Factor F1
Factor F2
Factor F3


If the risk-free rate is 3.6 percent, what is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return               %

rev: 04_26_2018_QC_CS-125284

Business   Finance   
0 0
Add a commentTranscribed image text
Next >

Homework Answers

Answer #1

SEE THE IMAGE. ANY DOUBTS, FEEL FREE TO ASK. THUMBS UP PLEASE

0 0
Know the answer?
Your Answer:

Post as a guest

Your Name:

What's your source?

Earn Coins

Coins can be redeemed for fabulous gifts.

Log In

Sign Up

Not the answer you're looking for?
Ask your own homework help question
Similar Questions
Suppose stock returns can be explained by the following three-factor model:    Ri = RF +...
Suppose stock returns can be explained by the following three-factor model:    Ri = RF + β1F1 + β2F2 − β3F3    Assume there is no firm-specific risk. The information for each stock is presented here:    β1 β2 β3   Stock A 1.11 .43   .06   Stock B .73 1.28 −.18   Stock C .64 −.10 1.17 The risk premiums for the factors are 5.9 percent, 5.6 percent, and 6.3 percent, respectively. You create a portfolio with 20 percent invested in Stock...
Suppose stock returns can be explained by a two-factor model. The firm-specific risks for all stocks...
Suppose stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows the information for two diversified portfolios:    β1 β2 E(R)   Portfolio A   .81 1.11    15%   Portfolio B 1.41 −.21 13    If the risk-free rate is 6 percent, what are the risk premiums for each factor in this model? (Do not round intermediate calculations and enter your answers as a percent rounded to 2 decimal places, e.g., 32.16.)...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart: Factor ? Expected Value Actual Value GDP .0009221 $14,311 $14,302 Inflation ?.95 4.4% 4.2% Interest rates ?.52 8.2% 8.0% ________________________________________ a. What is the systematic risk of the stock return? (A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those...
Suppose a three-factor model is appropriate to describe the returns of a stock. Information about those three factors is presented in the following chart:   Factor β Expected Value Actual Value   GDP .0008861 $14,266    $14,254        Inflation −.92 4.1% 3.9%   Interest rates −.49 7.6% 7.4%    a. What is the systematic risk of the stock return? (A negative answer should be indicated by a negative sign. Do not round intermediate calculations and enter your answer as a percent rounded to...
Consider the following information on a portfolio of three stocks: State of Probability of Stock A...
Consider the following information on a portfolio of three stocks: State of Probability of Stock A Stock B Stock C Economy State of Economy Rate of Return Rate of Return Rate of Return Boom .13 .08 .33 .54 Normal .54 .16 .18 .26 Bust .33 .17 − .17 − .36 a. If your portfolio is invested 38 percent each in A and B and 24 percent in C, what is the portfolio’s expected return, the variance, and the standard deviation?...
consider the following information about three stocks:    Rate of Return If State Occurs   State of...
consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .25 .30 .42 .54   Normal .45 .12 .10 .08   Bust .30 .03 −.24 −.44    a-1. If your portfolio is invested 45 percent each in A and B and 10 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent...
You've invested $3,300 in Stock Arbuckle and $4,300 invested in Stock Roscoe. The expected returns on...
You've invested $3,300 in Stock Arbuckle and $4,300 invested in Stock Roscoe. The expected returns on these stocks are 11 percent and 14 percent, respectively. Calculate the expected return on the portfolio. (Do not round intermediate calculations. Enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Portfolio expected return % is ____.
Consider the following information about three stocks: State of Probability of Economy State of Economy Stock...
Consider the following information about three stocks: State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .25 .34 .46 .58 Normal .50 .14 .12 .10 Bust .25 .05 −.26 −.46 a-1. If your portfolio is invested 20 percent each in A and B and 60 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) a-2....
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability...
Consider the following information about three stocks: Rate of Return If State Occurs State of Probability of Economy State of Economy Stock A Stock B Stock C Boom .20 .24 .36 .55 Normal .55 .17 .13 .09 Bust .25 .00 −.28 −.45 a-1 If your portfolio is invested 40 percent each in A and B and 20 percent in C, what is the portfolio expected return? (Do not round intermediate calculations. Enter your answer as a percent rounded to 2...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of...
Consider the following information about three stocks:    Rate of Return If State Occurs   State of Probability of   Economy State of Economy Stock A Stock B Stock C   Boom .30 .36 .48 .60   Normal .40 .15 .13 .11   Bust .30 .06 −.28 −.48    a-1. If your portfolio is invested 25 percent each in A and B and 50 percent in C, what is the portfolio expected return? (Do not round intermediate calculations and enter your answer as a percent...
ADVERTISEMENT
Need Online Homework Help?

Get Answers For Free
Most questions answered within 1 hours.

Ask a Question
ADVERTISEMENT