Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta Factor Risk Premium Inflation 1.7 5 % Industrial production 1.3 8 Oil prices 0.8 2 a. If T-bills currently offer a 8% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place.) b. Suppose that the market expects the values for the three...
8. Consider the following multifactor (APT) model of security returns for a particular stock Factor Factor Beta Factor Risk Premium Inflation 1.5 6% Industrial production 1.0 7 Oil prices 0.5 5 a. If T-bills currently offer a 6% yield, find the expected rate of return on this stock if the market views the stock as fairly priced. (Do not round intermediate calculations. Round your answer to 1 decimal place. Omit the "%" sign in...
Problem 1: Consider the following multifactor (APT) model of security returns for a particular stock Factor Inflation Industrial Production Oil Prices Factor Beta 1.0 0.5 0.2 Factor Risk Premium 9% 10% 8% If riskless T-bills currently offer an 8% yield, find the expected return on this stock if it is fairly priced (that is, if no arbitrage opportunities exist)
Consider the following simplified APT model: Factor Expected Risk Premium (%) Market 6.8 Interest rate −.2 Yield spread 4.6 Factor Risk Exposures Market Interest Rate Yield Spread Stock (b1) (b2) (b3) P .8 −1.4 −.2 P2 1.1 0 .4 P3 .3 1.5 1.2 Calculate the expected return for each of the stocks shown in the table above. Assume rf = 4.0%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return P...
Consider the following information: Beta Portfolio Risk- free Market Expected Return 6 % 11.4 9.4 20 a. Calculate the expected return of portfolio A with a beta of 20. (Round your answer to 2 decimal places.) Expected return b. What is the alpha of portfolio A (Negative value should be indicated by a minus sign. Round your answer to 2 decimal places.) Alpha c. If the simple CAPM is valid state whether the above situation is possible? Yes No 5....
Consider a three-factor APT model. The factors and associated risk premiums are: Risk Premium (%) Factor Change in gross national product (GNP) Change in energy prices Change in long-term interest rates +6.4 0.6 +2.8 Calculate expected rates of return on the following stocks. The risk-free interest rate is 6.5% a. A stock whose return is uncorrelated with all three factors. (Enter your answer as a percent rounded to 1 decimal place.) b. A stock with average exposure to each factor...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%) 6.8 -0.6 4.7 Stock Market (61) 1.0 0.9 0.3 Factor Risk Exposures Interest Rate Yield Spread (62) (63) -1.2 -0.4 0.2 1.4 1.3 Calculate the expected return for each of the stocks shown in the table above. Assume rf=3.4%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return P Expected return P2 Expected return P3
Consider a 3-factor Arbitrage Pricing Theory (APT) model. Assuming a risk-free rate of 4%, calculate the expected return of this stock. Factor Risk Premium Sensitivity to each factor Change in GDP 5% 1 Change in interest rate 1% 0.5 Inflation ratio 2.5% 0.2 (4 marks) Consider the following portfolio composed of 3 stocks (A, B, C): Stock Quantity Price (£) Beta A 500 1.5 0.8 B 520 1.7 0.97 C 610 1.1 1.04 What is the beta of...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (*) 6.0 -0.8 4.6 Stock Market (bi) 1.2 1.2 0.3 Factor Risk Exposures Interest Rate Yield Spread (52) (63) -1.2 -0.4 0 0.3 2.1 0.4 p3 Calculate the expected return for each of the stocks shown in the table above. Assume rf = 3.4%. (Do not round intermediate calculations. Enter your answers as a percent rounded to 2 decimal places.) Expected return P Expected return...
Consider the following simplified APT model: Factor Expected Risk Premium (%) Market 8.2 Interest rate −.4 Yield spread 5.3 Factor Risk Exposures Market Interest Rate Yield Spread Stock (b1) (b2) (b3) P 1.8 –1.3 –.6 P2 1.2 0 .9 P3 .3 .9 1.0 Consider a portfolio with equal investments in stocks P, P2, and P3. Assume rf = 3%. a. What are the factor risk exposures for the portfolio? (A negative answer should be indicated by a minus sign. Do...