Homework Answers
E.factor sensitivities and factor betas.
In a multifactor APT model, the coefficients on the macro factors are often called factor sensitivities, factor betas and also factor loadings.
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9. In a multifactor APT model, the coefficients on the macro factors are often called A....
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...
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...
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...
Problem 1: Consider the following multifactor (APT) model of security returns for a particular stock Factor...
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)
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?
Assume that you are using a two-factor APT model, with factors A and B, to find...
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%....
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...
Working with a two-factor APT model an investor has found two risk factors, X and Y. The investor...
Working with a two-factor APT model an investor has found two risk factors, X and Y. The investor is looking at two stocks, A and B. The expected return on stock A is 12% and that of stock B 10%. The beta (factor sensitivity) of stock A with respect to X is 1 and with respect to Y it is 1/2. The beta of stock B with respect to X is 0 and with respect to Y it is 2....
In the capm model, why E(ri-rf)2 is measured as total risk. why do we need a square
In the capm model, why E(ri-rf)2 is measured as total
risk. why do we need a square
CAPM Regression Model o The last requirement EE r)0 is called exogeneity t mt » Ensures that movements in the market are not correlated, in any way, with movements in idiosvncratic rick » One way of thinking about this is that all systematic risk is explained by the market factor rmt- rf- o All left over risk can not be controlled, and is...
Consider a three-factor APT model. The factors and associated risk premiums are: Risk Premium (%) Factor Change in gros...
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 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...
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)
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%....
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...
In the capm model, why E(ri-rf)2 is measured as total
risk. why do we need a square
CAPM Regression Model o The last requirement EE r)0 is called exogeneity t mt » Ensures that movements in the market are not correlated, in any way, with movements in idiosvncratic rick » One way of thinking about this is that all systematic risk is explained by the market factor rmt- rf- o All left over risk can not be controlled, and is...
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...
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