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    The Following Question Illustrates The Apt Imagine That There A

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    Amit Pandey
    This document presents a multi-part question to illustrate the arbitrage pricing theory (APT). It provides the sensitivity of investments X, Y, and Z to two macroeconomic factors and the expected risk premium for each factor. It then asks several questions about calculating the risk premium and sensitivity of portfolios combining different amounts of X, Y, and Z. It concludes by asking how to construct a fund with a specific sensitivity to one factor and compares the risk premiums of two such investments.

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    The Following Question Illustrates The Apt Imagine That There A

    Uploaded by

    Amit Pandey
    35 views1 page
    This document presents a multi-part question to illustrate the arbitrage pricing theory (APT). It provides the sensitivity of investments X, Y, and Z to two macroeconomic factors and the expected risk premium for each factor. It then asks several questions about calculating the risk premium and sensitivity of portfolios combining different amounts of X, Y, and Z. It concludes by asking how to construct a fund with a specific sensitivity to one factor and compares the risk premiums of two such investments.

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    The Following Question Illustrates the Apt Imagine That There A

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    This document presents a multi-part question to illustrate the arbitrage pricing theory (APT). It provides the sensitivity of investments X, Y, and Z to two macroeconomic factors and the expected risk premium for each factor. It then asks several questions about calculating the risk premium and sensitivity of portfolios combining different amounts of X, Y, and Z. It concludes by asking how to construct a fund with a specific sensitivity to one factor and compares the risk premiums of two such investments.

    Copyright:

    © All Rights Reserved
    Download as PDF, TXT or read online from Scribd
    Download as pdf or txt
    35 views1 page

    The Following Question Illustrates The Apt Imagine That There A

    Uploaded by

    Amit Pandey
    This document presents a multi-part question to illustrate the arbitrage pricing theory (APT). It provides the sensitivity of investments X, Y, and Z to two macroeconomic factors and the expected risk premium for each factor. It then asks several questions about calculating the risk premium and sensitivity of portfolios combining different amounts of X, Y, and Z. It concludes by asking how to construct a fund with a specific sensitivity to one factor and compares the risk premiums of two such investments.

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    Solved: The following question illustrates the APT Imagine

    that there a

    The following question illustrates the APT. Imagine that there are only two pervasive
    macroeconomic factors. Investments X, Y, and Z have the following sensitivities to these two
    factors:

    We assume that the expected risk premium is 4 percent on factor 1 and 8 percent on actor 2.
    Treasury bills obviously offer zero risk premium.
    a. According to the APT, what is the risk premium on each of the three stocks?
    b. Suppose you buy $200 of X and $50 of Y and sell $150 of Z. What is the sensitivity of your
    portfolio to each of the two factors? What is the expected risk premium?
    c. Suppose you buy $80 of X and $60 of Y and sell $40 of Z. What is the sensitivity of your
    portfolio to each of the two factors? What is the expected risk premium?
    d. Finally, suppose you buy $160 of X and $20 of Y and sell $80 of Z. What is your portfolio’s
    sensitivity now to each of the two factors? And what is the expected risk premium?
    e. Suggest two possible ways that you could construct a fund that has a sensitivity of .5 to factor
    1 only. Now compare the risk premiums on each of these two investments.
    f. Suppose that the APT did not hold and that X offered a risk premium of 8 percent,
    Y offered a premium of 14 percent, and Z offered a premium of 16 percent. Devise an
    investment that has zero sensitivity to each factor and that has a positive riskpremium.

    The following question illustrates the APT Imagine that there a

    ANSWER
    https://solvedquest.com/the-following-question-illustrates-the-apt-imagine-that-there-a/

    Reach out to [email protected] for enquiry.


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