Homework Answers
As per APT, Expected Rate of Return = Risk free Rate + Factor Beta*Factor Risk Premium
= 8% + 1*9% + 0.5*10% + 0.2*8%
= 23.6%
Hence, the expected return on stock = 23.6%
Add Answer to:
Problem 1: Consider the following multifactor (APT) model of security returns for a particular stock Factor...
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 Risk Premium 9% Factor Inflation Industrial production Oil prices Factor Beta 1.1 0.7 0.3 11 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. b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out...
8. Consider the following multifactor (APT) model of security returns for a particular stock Factor Factor...
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...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Factor Beta...
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...
Consider a 3-factor Arbitrage Pricing Theory (APT) model. Assuming a risk-free rate of 4%, calculate the...
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...
13. Consider the multifactor APT. There are two independent economic factors, F1 and F2. The risk-free...
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?
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT)...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT assumes that all investors hold the market portfolio The APT does not identify the relevant factors. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. Karine, an analyst at Graffiti Aviation (GA), models...
Consider the three stocks (Stock X, Stock Y and Stock Z) that have the following factor loadings (or factor betas)....
Consider the three stocks (Stock X, Stock Y and Stock Z) that have the following factor loadings (or factor betas). The zero-beta return (A): 3%, and the risk premium are:A : 10%入: 8%. Assume that all three stocks are currently priced at $50 Factor 2 Loading StockFactor 1 Loading 1.2 0.55 0.85 0.1 0.5 0.35 All rights reserved. 8 Calculation Problenm What are the expected returns for stock X, stock Y, and stock Zz 1. 2. What are the expected...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT)...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. The APT assumes that all investors hold the market portfolio. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT does not identify the relevant factors. Emily, an analyst at PietreDure Prestige (PDP), models...
Consider the following simplified APT model: Factor Market Interest rate Yield spread Expected Risk Premium (%)...
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
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively,...
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively, an asset A and a market index and π is the inflation rate. You have observed a sample of 88 data points and estimated the ß vector by OLS, resulting in: 0.4, βι 1.5 and β2-0.8, with standard errors, respectively, 0.6, 0.2 and 0.5. You want to compare this model with the standard CAPM model (with intercept) Based on the information you have now.,...
Consider the following multifactor (APT) model of security returns for a particular stock. Factor Risk Premium 9% Factor Inflation Industrial production Oil prices Factor Beta 1.1 0.7 0.3 11 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. b. Suppose that the market expects the values for the three macro factors given in column 1 below, but that the actual values turn out...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT assumes that all investors hold the market portfolio The APT does not identify the relevant factors. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. Karine, an analyst at Graffiti Aviation (GA), models...
Consider the three stocks (Stock X, Stock Y and Stock Z) that have the following factor loadings (or factor betas). The zero-beta return (A): 3%, and the risk premium are:A : 10%入: 8%. Assume that all three stocks are currently priced at $50 Factor 2 Loading StockFactor 1 Loading 1.2 0.55 0.85 0.1 0.5 0.35 All rights reserved. 8 Calculation Problenm What are the expected returns for stock X, stock Y, and stock Zz 1. 2. What are the expected...
9. The Arbitrage Pricing Theory Which of the following statements about the Arbitrage Pricing Theory (APT) are correct? Check all that apply. The APT does not restrict the number or nature of the factors relevant to the determination of a stock's return. The APT assumes that all investors hold the market portfolio. The APT is more restrictive than the Capital Asset Pricing Model (CAPM). The APT does not identify the relevant factors. Emily, an analyst at PietreDure Prestige (PDP), models...
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
Exercise 1 Consider the following APT-style model: where rA and rM are excess returns on, respectively, an asset A and a market index and π is the inflation rate. You have observed a sample of 88 data points and estimated the ß vector by OLS, resulting in: 0.4, βι 1.5 and β2-0.8, with standard errors, respectively, 0.6, 0.2 and 0.5. You want to compare this model with the standard CAPM model (with intercept) Based on the information you have now.,...
Most questions answered within 3 hours.
-
Assume that in a hydrogen atom, the electron circles the nucleus
in a circle of radius...
asked 12 minutes ago -
Evelyn incorporates her sole proprietorship, transferring it to
newly formed Papaya Corporation. The assets transferred have...
asked 3 minutes ago -
A
752 mL sample of water was placed in a 1000 gram pan of aluminum.
The...
asked 5 minutes ago -
1 point) Given the significance level α=0.01 find the following:
(a) left-tailed z value z= (b)...
asked 6 minutes ago -
Calculate the expected value, the variance, and the standard
deviation of the given random variable X....
asked 8 minutes ago -
Describe two obstacles that makes fixing atmospheric nitrogen
difficult.
asked 17 minutes ago -
T
F 53) Most differences
between human groups are the result of biology rather than
culture....
asked 21 minutes ago -
A 5.20 mW helium neon laser emits a visible laser beam with a
wavelength of 633...
asked 24 minutes ago -
Assignment:
Your
organization has made a strategic decision
to
outsourcework
currently performed in house. You have...
asked 23 minutes ago -
A hospital performs 100 surgeries per week. The probability that
complications after surgery occur is 10%....
asked 24 minutes ago -
In preparing its cash flow statement for the year ended December
31, 2018, Green Co. gathered...
asked 25 minutes ago -
Donna is 18 years old and full time accounting student.She is
saving for an overseas holiday...
asked 26 minutes ago