Consider a Two-Factor APT Model Where the First Factor Is

question 34

Multiple Choice

Consider a two-factor APT model where the first factor is changes in the 30-year T-bond rate,and the second factor is the percent growth in GNP.Based on historical estimates you determine that the risk premium for the interest rate factor is 0.02,and the risk premium on the GNP factor is 0.03.For a particular asset,the response coefficient for the interest rate factor is -1.2,and the response coefficient for the GNP factor is 0.80.The rate of return on the zero-beta asset is 0.03.Calculate the expected return for the asset.

• A) 5.0%
• B) 2.4%
• C) -3.0%
• D) -2.4%
• E) 3.0%

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Definitions:

Marginal Resource Cost Curve

A graphical representation showing the change in total cost incurred by producing one more unit of a resource, helping firms decide the optimal level of resources to employ.

Labor Supply Curve

A graphical representation showing the relationship between the wages offered and the quantity of labor workers are willing to supply.

Monopsonistic Labor Market

A market condition where there is only one buyer (employer) for many sellers of labor, giving the buyer significant control over wages and employment conditions.

Upsloping Labor Supply Curve

A graphical representation showing an increase in the quantity of labor supplied as wages rise, under the assumption that higher wages incentivize more work effort.