Determine sensitivities of the portfolio

Reference no: EM1365001

Based on a three-factor model, consider a portfolio composed of three securities with the following characteristics:

Security Factor 1 Sensitivity Factor 2 Sensitivity Factor 3 Sensitivity Proportion

A -0.2 3.6 0.05 0.6
B 0.5 10 0.75 0.2
C 1.5 2.2 0.3 0.2

What are the sensitivities of the portfolio to factors 1, 2, and 3?

Based on a one-factor model, two proportions, A and B, have equilibrium expected returns of 9.8% and 11.0% respectively. If the factor sensitivity of portfolio A is .8 and that of portfolio B is 1.0, what must the risk rate be?

Reference no: EM1365001

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