Consider a three-factor APT model. The factors and associated risk premiums are: Factor Change in...
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Consider a three-factor APT model. The factors and associated risk premiums are: Factor Change in gross national product (GNP) Change in energy prices Change in long-term interest rates Risk Premium (8) +6.8 0.5 +3.9 Calculate expected rates of return on the following stocks. The risk-free interest rate is 4.6%. a. A stock whose return is uncorrelated with all three factors. (Enter your answer as a percent rounded to 1 decimal place.) b. A stock with average exposure to each factor (.e., with b= 1 for each). (Enter your answer as a percent rounded to 1 decimal place.) c. A pure-play energy stock with high exposure to the energy factor (b = 2.1) but zero exposure to the other two factors. (Enter your answer as a percent rounded to 2 decimal places.) d. An aluminum company stock with average sensitivity to changes in interest rates and GNP, but negative exposure of b=-1.8 to the energy factor. (The aluminum company is energy-intensive and suffers when energy prices rise.) (Enter your answer as a percent rounded to 2 decimal places.) % % a. Expected rate of retum b. Expected rate of retum Expected rate of retum d. Expected rate of retum c. % %
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