The impacts of the second and third factors are incremental to the impact of the first factor. Given: risk-free return is 5%; beta coefficients for the 3 factors are 1.1, 0.3 and 0.4 respectively; expected return of the market portfolio is 11%; expected growthrate of real GDP is 3%; expected rate of CPI is 3%. a) Calculate the required return for this company. Show the formula and calculations clearly.b) Discuss the benefits of APT compared to Capital Asset Pricing Model (CAPM) relative to diversified portfolios.
The impacts of the second and third factors are incremental to the impact of the first factor. Given: risk-free return is 5%; beta coefficients for the 3 factors are 1.1, 0.3 and 0.4 respectively; expected return of the market portfolio is 11%; expected growthrate of real GDP is 3%; expected rate of CPI is 3%. a) Calculate the required return for this company. Show the formula and calculations clearly.b) Discuss the benefits of APT compared to Capital Asset Pricing Model (CAPM) relative to diversified portfolios.
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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Transcribed Image Text:The impacts of the second and third factors are incremental to the impact of the
first factor. Given: risk-free return is 5%; beta coefficients for the 3 factors are
1.1, 0.3 and 0.4 respectively; expected return of the market portfolio is 11%;
expected growthrate of real GDP is 3%; expected rate of CPI is 3%. a) Calculate
the required return for this company. Show the formula and calculations clearly.b)
Discuss the benefits of APT compared to Capital Asset Pricing Model (CAPM)
relative to diversified portfolios.
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