Risk free rate is 4%. Factor 1 has an expected return of 8% and factor 2 has an expected return of 10%. Calculate the expected return for each asset with the following sensitivities using the Arbitrage Pricing Theory (APT). (a) β1 = 1.2, β2 = 0.9; (b) β1 = 1.5, β2 = −0.60;
Risk free rate is 4%. Factor 1 has an expected return of 8% and factor 2 has an expected return of 10%. Calculate the expected return for each asset with the following sensitivities using the Arbitrage Pricing Theory (APT). (a) β1 = 1.2, β2 = 0.9; (b) β1 = 1.5, β2 = −0.60;
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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Assume that there are two factors that price assets. Risk free rate is 4%. Factor 1 has an
expected return of 8% and factor 2 has an expected return of 10%. Calculate the expected
return for each asset with the following sensitivities using the Arbitrage Pricing Theory (APT).
(a) β1 = 1.2, β2 = 0.9;
(b) β1 = 1.5, β2 = −0.60;
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