6. In APT multi-factors model, we assume there are two risk factors, accidental

Question

6. In APT multi-factors model, we assume there are two risk factors, accidental changed on intlation and GDP. We expected both factors would change 6% and 8% next year, respectively. If a portfolio has the correlation with the two factors are B1-0.5 and B: 0.75, respectively, what's the portfolio's total risk premium during the year? A. 7.00% B. 5.50% C. 9.00% D. 6.00% E. No of them 17. Continue from previous question, suppose the portfolio actually has an expected excess return of 1 1%. What's the alpha of the portfolio? A. 0.5% B. 1.00% C. 2.00% D. 3.00% E. No of them

Explanation / Answer

Q6)

Risk Premium = B1*6% + B2*8% = 0.5*6 + 0.75*8 = 9 %

Ans is C

Q7) E) None of Them

Because for Calculating Alpha we need Expedted Rate of return which is equal to Risk free rate + Risk Premium . We don't have any knowledge about Risk Free Rate

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