Exhibit 7-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)

question 117

Multiple Choice

Exhibit 7-8
USE THE FOLLOWING INFORMATION FOR THE NEXT PROBLEM(S)
Consider the three stocks, stock X, stock Y and stock Z, that have the following factor loadings (or factor betas) $$\begin{array} { c c c } \text { Stack } & \text { Factor 1 Loading } & \text { Factor 2 Loading } \\\hline \mathbf { X } & - 0.55 & 1.2 \\\mathbf { Y } & - 0.10 & 0.85 \\\mathbf { Z } & 0.35 & 0.5\end{array}$$
The zero-beta return (λ₀) = 3%, and the risk premia are λ₁ = 10%, λ₂ = 8%. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7-8. The expected returns for stock X, stock Y, and stock Z are

• A) 3%, 8%, 10%
• B) 7.1%, 10.5%, 8.8%
• C) 7.1%, 8.8%, 10.5%
• D) 10%, 5.5%, 14%
• E) None of the above.

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Definitions:

MMPI

The Minnesota Multiphasic Personality Inventory, a standardized psychometric test used to identify personality and psychological disorders.

Researchers

Individuals who conduct systematic investigation and study in order to establish facts and reach new conclusions in various fields of knowledge.

MMPI

A psychological assessment that evaluates personality traits and psychopathology.

True-False Questions

A type of objective assessment in which respondents are asked to select the true or false option in response to statements provided.