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Suppose stock returns can be explained by the following three-factor model: Ri = RF + β1F1...

Suppose stock returns can be explained by the following three-factor model:

Ri = RF + β1F1 + β2F2 − β3F3

Assume there is no firm-specific risk. The information for each stock is presented here:

β1 β2 β3
Stock A 1.09 .41 .04
Stock B .71 1.26 −.16
Stock C .62 −.08 1.15


The risk premiums for the factors are 5.7 percent, 5.8 percent, and 6.5 percent, respectively. You create a portfolio with 30 percent invested in Stock A, 25 percent invested in Stock B, and the remainder in Stock C.

What is the expression for the return on your portfolio? (Do not round intermediate calculations and round your answer to 2 decimal places, e.g., 32.16.)  

Factor Beta
Factor F1 n/r
Factor F2 n/r
Factor F3 n/r


If the risk-free rate is 3.2 percent, what is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)

Expected return            n/r   %

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Answer #1

wightcd ag y indaidanal evck facso p 0.3 farc r025 w 0US Factor f (B) + 0.3x 104+ 0 25x0.H+ 0 usx 062 D.7835 0.78 Facbvr F .1Kf 0032 X - E0032 t 078 x 0.DS7 +040x 0 PS8-0-44x O D6S O.068158 - 6-82 9

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