You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC Assume that the T-bill rate decreases to 2%, with the other variables remaining unchanged. Would you recommend to buy or sell stock ABC?
You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC Assume that the T-bill rate decreases to 2%, with the other variables remaining unchanged. Would you recommend to buy or sell stock ABC?
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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INV2 P2 2d
You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%.
A stock with ticker ABC has historically shown returns which have followed the equation:
rABC=0.12+.75F1+1.0F2+.5F3+eABC
Assume that the T-bill rate decreases to 2%, with the other variables remaining unchanged. Would you recommend to buy or sell stock ABC?
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