This paper circulates around the core theme of Consider a three-factor APT model. The factors and associated risk premiums are: Factor Risk Premium Change in GNP 5% Change in energy prices -1 Change in long-term interest rates +2 Calculate expected rates of return on the following stocks. The ris together with its essential aspects. It has been reviewed and purchased by the majority of students thus, this paper is rated 4.8 out of 5 points by the students. In addition to this, the price of this paper commences from £ 99. To get this paper written from the scratch, order this assignment now. 100% confidential, 100% plagiarism-free.
Consider a three-factor APT model. The
factors and associated risk premiums are:
Factor Risk
Premium
Change in GNP 5%
Change in energy prices -1
Change
in long-term interest rates +2
Calculate expected rates of return
on the following stocks. The risk-free interest rate is 7%.
a. A stock whose return is
uncorrelated with all three factors.
b. A
stock with average exposure to each factor (i.e., with b = 1 for each).
c. A
pure-play energy stock with high exposure to the energy factor (b = 2) but zero
expo- sure to the other two factors.
d. An aluminum company stock with
average sensitivity to changes in interest rates and GNP, but negative exposure
of b = -1.5 to the energy factor. (The aluminum company is energy-intensive and
suffers when energy prices rise.)