Question

Consider the multifactor APT. There are two independent economic
factors, *F*_{1} and *F*_{2}. The
risk-free rate of return is 6%. The following information is
available about two well-diversified portfolios:

Portfolio | ββ on F_{1} |
ββ on F_{2} |
Expected Return | ||||||

A | 1.0 | 2.0 | 19 | % | |||||

B | 2.0 | 0.0 | 12 | % | |||||

Assuming no arbitrage opportunities exist, the risk premium on
the factor *F*_{1} portfolio should be

Answer #1

Suppose that there are two independent economic factors,
F1 and F2. The risk-free
rate is 10%, and all stocks have independent firm-specific
components with a standard deviation of 40%. Portfolios A
and B are both well-diversified with the following
properties:
Portfolio
Beta on F1
Beta on F2
Expected Return
A
1.6
2.0
30
%
B
2.5
–0.20
25
%
What is the expected return-beta relationship in this economy?
Calculate the risk-free rate, rf, and the
factor risk premiums, RP1 and...

We have two economic factors F1 and F2 in
a two-factor APT model. We have the following data on three
well-diversified portfolios.
Stock
Expected return
bi1
bi2
A
7%
2
-1
B
17%
1
2
C
12%
1
?
If the risk free rate is 2%, what is stock C's bi2 so
that there is no arbitrage opportunity in the market?
Group of answer choices
0.5
-1
2
1

1)Consider the multifactor APT with two factors. The risk
premium on the factor 1 portfolio is 3%. The risk-free rate of
return is 6%. The risk-premium on factor 2 is 7.75%. Suppose that a
security A has an expected return of 18.4%, a beta of 1.4 on factor
1 and a beta of .8 on factor 2. Is there an arbitrage portfolio? If
not, prove it, if yes exhibit it?
2)In the APT model, what is the nonsystematic standard deviation...

Consider the one-factor APT. Assume that two portfolios, A and
B, are well diversified. The betas of portfolios A and B are 0.5
and 1.5, respectively. The expected returns on portfolios A and B
are 12% and 24%, respectively. Assuming no arbitrage opportunities
exist, what must be the risk-free rate?

a) Assume that the risk-free rate of interest is 4% and the
expected rate of return on the market is 14%. A share of stock
sells for £68 today. It will pay a dividend of £3 per share at the
end of the year. Its beta is 1.2. What do investors expect the
stock to sell for at the end of the year?
b) Suppose that there are two independent economic factors, F1
and F2. The risk-free rate is 6%....

Problem 2 [3pts] Suppose portfolios A and B are both
well-diversified with the following properties: Portfolio β1 on F1
β2 on F2 Expected return A 0.7 1.1 9.6% B -0.2 0.9 3.4% There are
two independent economic factors, F1 and F2. The risk-free rate is
1%. What is the expected return-beta relationship in this economy?
(Hint: find risk premium for each factor)

Suppose there are two independent economic factors,
M1 and M2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 48%. Portfolios A
and B are both well diversified.
Portfolio
Beta on M1
Beta on M2
Expected Return (%)
A
1.6
2.3
38
B
2.2
-0.6
8
What is the expected return–beta relationship in this economy?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)

Suppose there are two independent economic factors, M1 and M2.
The risk-free rate is 5%, and all stocks have independent
firm-specific components with a standard deviation of 52%.
Portfolios A and B are both well diversified. Portfolio Beta on M1
Beta on M2 Expected Return (%) A 1.6 2.5 31 B 2.4 -0.7 12 What is
the expected return–beta relationship in this economy? (Do not
round intermediate calculations. Round your answers to 2 decimal
places.) Expected return–beta relationship E(rP) =...

Suppose there are two independent economic factors,
M1 and
M2. The
risk-free rate is 6%, and all stocks have independent firm-specific
components with a standard deviation of 42%. Portfolios A
and B are both well diversified.
Portfolio
Beta on
M1
Beta on
M2
Expected
Return (%)
A
1.5
2.4
32
B
2.3
-0.5
10
What is the expected return–beta relationship in this economy?
(Do not round
intermediate calculations. Round your answers to 2 decimal
places.)
Expected return–beta relationship E(rP) = %...

Suppose there are two independent economic factors,
M1 and M2. The risk-free
rate is 5%, and all stocks have independent firm-specific
components with a standard deviation of 40%. Portfolios A
and B are both well diversified.
Portfolio
Beta on M1
Beta on M2
Expected Return (%)
A
1.8
2.2
30
B
2.1
-0.5
8
What is the expected return–beta relationship in this economy?
(Do not round intermediate calculations. Round your answers
to 2 decimal places.)
Expected Return - beta relationship...

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