11. Consider the single factor APT. Portfolio A has a beta of 0.5 and an expected...
Consider the single factor APT. Portfolio A has a beta of 1.2 and an expected return of 24%. Portfolio B has a beta of .8 and an expected return of 20%. The risk-free rate of return is 7%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio __________ and a long position in portfolio _________. A;B A;A B;A B;B
Consider the single factor APT. Portfolio A has a beta of 1.6 and an expected return of 28%. Portfolio B has a beta of 0.8 and an expected return of 21%. The risk-free rate of return is 5%. If you wanted to take advantage of an arbitrage opportunity, you should take a short position in portfolio__ and a long position in portfolio__.
Consider a single factor APT. Portfolio A has a beta of 2.0 and an expected return of 19%. Portfolio B has a beta of 1.3 and an expected return of 8%. The risk-free rate of return is 3%. You can create a portfolio D which invests ____% in portfolio A and the rest in the risk-free asset so that it has the same beta as portfolio B, and compare the returns to portfolio D and portfolio B to decide the...
Assume that you are using a two-factor APT model, with factors A and B, to find the fair expected return on a well-diversified portfolio Q that has an actual expected return of 18%. Portfolio Q's factor loadings (i.e., Q's betas on each of the two factors) and the factors' risk premiums are shown in the table below. Portfolios for factors A and B are tradable (i.e., you can take long or short positions in them). The risk-free rate is 3.5%....
Assuming the single-factor APT model applies, the factor beta for the market portfolio is: zero. one. the average of the risk-free beta and the beta for the highest risk security in the portfolio. impossible to calculate without collecting sample data. irrelevant to the model.
2. Suppose there are two independent risk factors governing securities returns according to the two factor APT. The risk-free rate is 10%. The following well-diversified portfolios exist: beta with respect beta with respect Expected Return to factor 1 to factor 2 Portfolio #1 25% Portfolio #2 25% (a) What are the expected returns on each of the two risk factors in this economy? (b) Suppose another portfolio has a beta with respect to the first factor of 1, a beta...
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 a one factor economy where the risk free rate is 5%, and portfolios A and B are well diversified portfolios. Portfolio A has a beta of 0.6 and an expected return of 8%, while Portfolio B has a beta of 0.8 and an expected return of 10%. Is there an arbitrage opportunity in this economy? If yes, how could you exploit it?
In the context of a one factor APT model, you are looking at the following three portfolios: Portfolio Expected return Factor sensitivity A 6 1.05 B 13 0.76 C 13 1.47 If you construct a composite portfolio "D" from B and C that has the same factor sensitivity as portfolio A, (similar to previous problem) and then go long D and short A (or the other way around) to create a riskless arbitrage profit, what would be your expected return?...
13. Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: Portfolio ββ on F1 ββ on F2 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 F1 portfolio should be?Assuming no arbitrage opportunities exist, the risk premium on the factor F2 portfolio should be?