Homework Answers
R(A) = ai + 1 x I1 + 0.5 x I2 = 12.0%... 1)
R(B) = ai + 3 x I1 + 0.2 x I2 = 13.4%....2)
R(C) = ai + 3 x I1 - 0.5 x I2 = 12.0%....3)
Subtracting 2 and 3,
=> 13.4% - 12.0% = 0.7 x I2
=> I2 = 2%
Substituting I2 in 1 and 3,
R(A) = 12% = ai + 1 x I1 + 0.5 x 2%
=> 11% = ai + I1
R(C) = 12% = ai + 3 x I1 - 0.5 x 2%
=> 13% = ai + 3I1
Subtracting one from another, we get
=> I1 = 1% and ai = 10%
Two-index model equation
Ri = 10% + bi1 x 1% + bi2 x 2% + ei
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