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:

War Debts

Financial obligations incurred by a country as a result of warfare, typically owed to other countries or international entities.

British

Pertaining to the people, culture, or country of Britain, including England, Scotland, Wales, and Northern Ireland.

Renewed Interest

A resurgence of attention or enthusiasm towards a particular subject or activity after a period of decline or neglect.

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Lands and regions located to the west which have been subject to exploration, settlement, and expansion.