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Economical growth rate




Hello I have a few questions that is bugging me. I just need some help working these out.;1) Consider the one-factor APT. The variance of returns on the factor portfolio is 6%. The beta of a well-diversified portfolio on the factor is 1.1. The variance of returns on the well-diversified portfolio is approximately.;2) Consider the multifactor APT with two factors. Stock A has an expected return of 16.4%, a beta of 1.4 on factor 1 and a beta of.8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The risk-free rate of return is 6%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?;3) Suppose that two factors have been identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 2%, and IR 2.0%. A stock with a beta of 0.9 on IP and 0.4 on IR currently is expected to provide a rate of return of 6%. If industrial production actually grows by 4%, while the inflation rate turns out to be 4.0%, what is your revised estimate of the expected rate of return on the stock?


Paper#17874 | Written in 18-Jul-2015

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