Suppose stock returns can be explained by the following three-factor model: R=RF+ B1F+B2F2-B3F3 Assume there is no firm-specific risk. The information for each stock is presented here: ẞ1 B2 ẞ3 Stock A 1.75 Stock B .82 Stock C .83 .75 $.50 1.35 -.70 -.33 1.44 The risk premiums for the factors are 7.1 percent, 6.3 percent, and 6.7 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent invested in Stock B, and the remainder in Stock C. The risk-free rate is 4.2 percent. What is the beta for each factor for the return on your portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Factor F1 Factor F2 Factor F3 What is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %
Suppose stock returns can be explained by the following three-factor model: R=RF+ B1F+B2F2-B3F3 Assume there is no firm-specific risk. The information for each stock is presented here: ẞ1 B2 ẞ3 Stock A 1.75 Stock B .82 Stock C .83 .75 $.50 1.35 -.70 -.33 1.44 The risk premiums for the factors are 7.1 percent, 6.3 percent, and 6.7 percent, respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent invested in Stock B, and the remainder in Stock C. The risk-free rate is 4.2 percent. What is the beta for each factor for the return on your portfolio? (Do not round intermediate calculations and round your answers to 2 decimal places, e.g., 32.16.) Factor F1 Factor F2 Factor F3 What is the expected return on your portfolio? (Do not round intermediate calculations and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.) Expected return %
Chapter1: Making Economics Decisions
Section: Chapter Questions
Problem 1QTC
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Transcribed Image Text:Suppose stock returns can be explained by the following three-factor model:
R=RF+ B1F+B2F2-B3F3
Assume there is no firm-specific risk. The information for each stock is presented here:
ẞ1
B2
ẞ3
Stock A 1.75
Stock B .82
Stock C .83
.75
$.50
1.35
-.70
-.33
1.44
The risk premiums for the factors are 7.1 percent, 6.3 percent, and 6.7 percent,
respectively. You create a portfolio with 20 percent invested in Stock A, 20 percent
invested in Stock B, and the remainder in Stock C. The risk-free rate is 4.2 percent. What
is the beta for each factor for the return on your portfolio? (Do not round intermediate
calculations and round your answers to 2 decimal places, e.g., 32.16.)
Factor F1
Factor F2
Factor F3
What is the expected return on your portfolio? (Do not round intermediate calculations
and enter your answer as a percent rounded to 2 decimal places, e.g., 32.16.)
Expected return
%
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