Exhibit 92
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider

question 34

Multiple Choice

Exhibit 9.2
USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas) . $$\begin{array} { c c c } \text { Stock } & \text { Factor 1 Loading } & \text { Factor 2 Loading } \\\hline \mathrm { X } & - 0.55 & 1.2 \\\mathrm { Y } & - 0.10 & 0.85 \\\mathrm { Z } & 0.35 & 0.5\end{array}$$ The zero-beta return ( $\lambda$ ₀) = 3%, and the risk premia are $\lambda$ ₁ = 10%, $\lambda$ ₂ = 8%. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 9.2. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50% in stock X, -100% in stock Y, and 50% in stock Z. The weighted exposure to risk factor 1 for stocks X, Y, and Z are

• A)0.50, -1.0, 0.50
• B)-0.50, 1.0, -0.50
• C)0.60, -0.85, 0.25
• D)-0.275, 0.10, 0.175
• E)None of the above.

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Definitions:

Depressant Drugs

Substances that reduce the function or activity of a specific part of the body or brain, often used to induce relaxation, decrease anxiety, or promote sleep.

Anxiety

A feeling of worry, nervousness, or unease, often about an imminent event or something with an uncertain outcome.

Relaxation

Relaxation refers to a state of calmness, reduced tension, and stress, often achieved through techniques such as deep breathing, meditation, or certain physical activities.

Caffeine

A stimulant found in various plants, which acts on the central nervous system to increase alertness and reduce fatigue.