Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium (%) Change in gross national product (GNP) +6.9 Change in energy prices 0.4 Change in long-term interest rates +2.6 Calculate expected rates of return on the following stocks. The risk-free interest rate is 4.8%. A stock whose return is uncorrelated with all three factors. (Enter your answer as a percent rounded to 1 decimal place.) A stock with average exposure to each factor (i.e., with b = 1 for each). (Enter your answer as a percent rounded to 1 decimal place.) A pure-play energy stock with high exposure to the energy factor (b = 1.9) but zero exposure to the other two factors. (Enter your answer as a percent rounded to 2 decimal places.) An aluminum company stock with average sensitivity to changes in interest rates and GNP, but negative exposure of b = –1.9 to the energy factor. (The aluminum company is energy-intensive and suffers when energy prices rise.) (Enter your answer as a percent rounded to 2 decimal places.)
Consider a three-factor APT model. The factors and associated risk premiums are:
| Factor | Risk Premium (%) |
| Change in gross national product (GNP) | +6.9 |
| Change in energy prices | 0.4 |
| Change in long-term interest rates | +2.6 |
Calculate expected
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A stock whose return is uncorrelated with all three factors. (Enter your answer as a percent rounded to 1 decimal place.)
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A stock with average exposure to each factor (i.e., with b = 1 for each). (Enter your answer as a percent rounded to 1 decimal place.)
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A pure-play energy stock with high exposure to the energy factor (b = 1.9) but zero exposure to the other two factors. (Enter your answer as a percent rounded to 2 decimal places.)
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An aluminum company stock with average sensitivity to changes in interest rates and GNP, but negative exposure of b = –1.9 to the energy factor. (The aluminum company is energy-intensive and suffers when energy prices rise.) (Enter your answer as a percent rounded to 2 decimal places.)
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