specific risk of this 3. On a market stocks returns are explained by two factors F1 and F2: Ri= ai + Bil F1 + ßi2 F2 + εi Portofolios A, B and C are perfectly diversified and have the following characteristics: Stock Expected return Bil Bi2 A 11.125 0.5 1 B 10.5 0.5 1 C .0.6 8 0.3 nother stock D has a return of 12% and a sensitivity to these factors of 0,7 and 0,65 respectively. a. Compute the risk premiums of these factors. b. Use A.B and C to cont
specific risk of this 3. On a market stocks returns are explained by two factors F1 and F2: Ri= ai + Bil F1 + ßi2 F2 + εi Portofolios A, B and C are perfectly diversified and have the following characteristics: Stock Expected return Bil Bi2 A 11.125 0.5 1 B 10.5 0.5 1 C .0.6 8 0.3 nother stock D has a return of 12% and a sensitivity to these factors of 0,7 and 0,65 respectively. a. Compute the risk premiums of these factors. b. Use A.B and C to cont
Essentials Of Investments
11th Edition
ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Publisher:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
Chapter1: Investments: Background And Issues
Section: Chapter Questions
Problem 1PS
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![return of 35% and a risk (o) of 65%. What is the specific risk of this
3. On a market stocks returns are explained by two factors F1 and F2:
Ri= ai + Bil F1 + ßi2 F2 + ei
Portofolios
Stock
A, B and C are perfectly diversified and have the following characteristics:
Expected return
Bil
Bi2
A
11.125
1
0.5
B
10.5
0.5
1
C
8
0.3
0.6
Another stock D has a return of 12% and a sensitivity to these factors of 0,7 and 0,65 respectively.
a. Compute the risk premiums of these factors.
b. Use A,B and C to construct a portfolio with the same level of risk as stock D.
c. what is the possible arbitrage gain of an investor who buys shares of D in value of
100000$?](/v2/_next/image?url=https%3A%2F%2Fcontent.bartleby.com%2Fqna-images%2Fquestion%2F539cb44f-ccb6-4975-b9d1-e0ec335bdecd%2Fbebccc4b-fc13-4f26-8cc4-6a86fa93a7d6%2F6a2rz1_processed.png&w=3840&q=75)
Transcribed Image Text:return of 35% and a risk (o) of 65%. What is the specific risk of this
3. On a market stocks returns are explained by two factors F1 and F2:
Ri= ai + Bil F1 + ßi2 F2 + ei
Portofolios
Stock
A, B and C are perfectly diversified and have the following characteristics:
Expected return
Bil
Bi2
A
11.125
1
0.5
B
10.5
0.5
1
C
8
0.3
0.6
Another stock D has a return of 12% and a sensitivity to these factors of 0,7 and 0,65 respectively.
a. Compute the risk premiums of these factors.
b. Use A,B and C to construct a portfolio with the same level of risk as stock D.
c. what is the possible arbitrage gain of an investor who buys shares of D in value of
100000$?
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