USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the Three

question 46

Multiple Choice

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) .
The zero-beta return ( $\lambda$ 0) = 3 percent, and the risk premia are $\lambda$ 1 = 10 percent and $\lambda$ 2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent 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) 0.40, -0.75, 0.25.

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Definitions:

Gross Investment

The total amount invested in the purchase of new capital assets plus replacement of depreciated assets, reflecting the total expenditure on new capital in an economy.

Depreciation

The process of allocating the cost of a tangible asset over its useful life, reflecting the decrease in value over time due to wear and tear or obsolescence.

Net Investment

The overall sum invested by a company or an economy in capital assets, with depreciation deducted.

Depreciation

Depreciation is an accounting method of allocating the cost of a tangible or physical asset over its useful life, representing how much of the asset's value has been used up.