The Table Below Provides Factor Risk Sensitivities and Factor Risk

question 101

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.
$\begin{array}{lcc}\text { Risk Factor } &\begin{array}{c}\text { Factor } \\\text { Sensitivity }(\beta) \end{array}& \begin{array}{c}\text { Risk } \\\text { Premium }(\lambda) \end{array} \\\hline \text { MP } & 1.76 & 0.0259 \\\text { UI } & -0.8 & -0.0432 \\\text { UPR } & 0.87 & 0.0149\end{array}$
Calculate the expected excess return for the asset.

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

---

Definitions:

Temporal Coding

The perception of lower-pitched sounds that results from the timing of firing of the auditory nerve when the basilar membrane vibrates from sound waves of lower frequencies.

Low Frequencies

Sounds or signals that fall at the lower end of the auditory range, typically below 250 Hz, often associated with bass tones or vibrations.

Frequency

The number of occurrences of a repeating event per unit of time.

Hertz

The unit of frequency in the International System of Units (SI), representing one cycle per second.