The Table Below Provides Factor Risk Sensitivities and Factor Risk

question 129

Multiple Choice

The table below provides factor risk sensitivities and factor risk premia for a three-factor model for a particular asset, where factor 1 is MP (the growth rate in U.S. industrial production) , factor 2 is UI (the difference between actual and expected inflation) , and factor 3 is UPR (the unanticipated change in bond credit spread) . Calculate the expected excess return for the asset.

• A) 12.32 percent
• B) 9.32 percent
• C) 4.56 percent
• D) 6.32 percent
• E) 8.02 percent

---

Definitions:

Pure Competitors

In a purely competitive market, companies sell products that are perfect substitutes for one another, leading to no control over market prices by individual firms.

R&D

Short for Research and Development, it refers to the activities undertaken by companies and organizations to innovate and introduce new products or services.

Innovation

The act of turning a concept or innovation into a product or service that adds value or that consumers are willing to purchase.

Copyright

A legal right granted to the creator of original works of authorship including literary, dramatic, musical, artistic, and certain other intellectual works, to control and profit from the use of their work for a certain period of time.