Exampleƒ 95

Assume that a 3-factor APT model is ap

propriate. The expected return on a

portfolio with zero beta values is 5%. Yo

u are interested in an equally weighted

portfolio of 2 stocks, A and B. You shou

ld compute the approximate expected

return on the portfolio, given the following info.
Single-period random cash flows: Factor models - APT

.

(^02) ,
0
;
(^09) ,
0
;
(^07) ,
0
;
(^7) ,
0
; 1
;
(^6) ,
0
;
(^2) ,
0
;
(^5) ,
0
; 3
,
0
3
2
1
3
,
3
,
2
,
2
,
1
,
1
,

=

=

=

=

F
F
F
F
B
F
A
F
B
F
A
F
B
F
A
λ
λ
λ
β
β
β
β
β
β