In accordance with the arbitrage pricing theory

Assignment Help Other Subject
Reference no: EM131755263

In accordance with the Arbitrage Pricing Theory, assume that stock returns can be explained by the following four factor model:
E(R) = RF + ?1F1 + ?2F2 + ?3F3 + ?4F4
Below please find betas for each of four stocks as follows; assume there is no firm specific risk.
Stock ?1 ?2 ?3 ?4
A 1.25 .70 .08 .65
B .65 1.40 -.45 .85
C .75 -.20 1.30 -.15
D -.35 .80 1.20 1.45
The risk premiums for the factors are 6.2%, 5.7%, 3.9% and 7.0% respectively. If you create a portfolio comprised of 25% of Stock A, 15% of Stock B, and 30% each of Stocks C and D, what is the equation for your model? Assuming a risk-free rate of 6%, what is the expected return on your portfolio?
Assume that the factors in this model include the following: Real growth in GDP (F1), unexpected inflation (F2), change in interest rates (F3), and change in expected inflation (F4). What do the signs and magnitude of the corresponding betas tell you about the stocks in this portfolio?
Factor models are one method of assessing risk and return, the Capital Asset Pricing Model (CAPM) is another. How does this method that you have used above differ from the CAPM? Under what conditions would you obtain the same expected return using either method?S

Reference no: EM131755263

Questions Cloud

Discuss luxury watches and sporty watches : Westfall Watches has two product lines: Luxury watches and Sporty watches. Income statement data for the most recent year
Alyze change and development that are currently taking place : Determine if the turnaround has been effective and improved its profitability. Analyze changes and developments that are currently taking place in the HR field.
Introduce the company from a digital marketing perspective : Cost to Satisfy What makes a great website experience?Evaluate the business' website based on this research - What pricing models are used/incentives .
How much is the opportunity cost associated with starting : How much is the opportunity cost associated with starting the new business
In accordance with the arbitrage pricing theory : In accordance with the Arbitrage Pricing Theory, assume that stock returns can be explained by the following four factor model:
Find a strategy or goal statement : Research a company and try to find a strategy or goal statement. Do you think you could align an HPT intervention to it-What kinds of requirements do you think
Categorize the competitors major strengths and weaknesses : Classify the company's major competitors as inter- or intra-competitors. Categorize the competitors' major strengths and weaknesses.
Analyze relation between project network and project plan : Analyze in your own words, the relationship between a project network and a project plan. Can a project plan be created without a project network?
Fundamentals of case management practice : Review the Summers text, pp. 71-75. Choose two hypothetical practice situations under "Ethically, What Went Wrong?"

Reviews

Write a Review

Other Subject Questions & Answers

  Cross-cultural opportunities and conflicts in canada

Short Paper on Cross-cultural Opportunities and Conflicts in Canada.

  Sociology theory questions

Sociology are very fundamental in nature. Role strain and role constraint speak about the duties and responsibilities of the roles of people in society or in a group. A short theory about Darwin and Moths is also answered.

  A book review on unfaithful angels

This review will help the reader understand the social work profession through different concepts giving the glimpse of why the social work profession might have drifted away from its original purpose of serving the poor.

  Disorder paper: schizophrenia

Schizophrenia does not really have just one single cause. It is a possibility that this disorder could be inherited but not all doctors are sure.

  Individual assignment: two models handout and rubric

Individual Assignment : Two Models Handout and Rubric,    This paper will allow you to understand and evaluate two vastly different organizational models and to effectively communicate their differences.

  Developing strategic intent for toyota

The following report includes the description about the organization, its strategies, industry analysis in which it operates and its position in the industry.

  Gasoline powered passenger vehicles

In this study, we examine how gasoline price volatility and income of the consumers impacts consumer's demand for gasoline.

  An aspect of poverty in canada

Economics thesis undergrad 4th year paper to write. it should be about 22 pages in length, literature review, economic analysis and then data or cost benefit analysis.

  Ngn customer satisfaction qos indicator for 3g services

The paper aims to highlight the global trends in countries and regions where 3G has already been introduced and propose an implementation plan to the telecom operators of developing countries.

  Prepare a power point presentation

Prepare the power point presentation for the case: Santa Fe Independent School District

  Information literacy is important in this environment

Information literacy is critically important in this contemporary environment

  Associative property of multiplication

Write a definition for associative property of multiplication.

Free Assignment Quote

Assured A++ Grade

Get guaranteed satisfaction & time on delivery in every assignment order you paid with us! We ensure premium quality solution document along with free turntin report!

All rights reserved! Copyrights ©2019-2020 ExpertsMind IT Educational Pvt Ltd