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investment and portfolio managment

[2.5x4] You have been assigned the task of estimating the expected returns for three different stocks: Alpha, Beta, and Gamma. Based on your preliminary the historical risk premiums associated with three risk factors that could potentially be included in your calculations are: the excess return on a proxy for the market portfolio (MKT), and two variables capturing general macroeconomic exposures (GDP and EXPORT). These values are: AMKT=7.5%, AGDP = -0.3%, and AEXPORT = 0.6%. You have also estimated the following factor betas for all three stocks with respect to each of these potential risk factors STOCK Alpha Beta Gamma MKT 1.24 0.91 1.03 GDP -0.42 0.54 -0.09 EXPORT 0.02 0.21 -0.08 a. Calculate expected returns for the three stocks using just the MKT risk factor. Assume a risk-free rate of 5.5%. b. Calculate the expected returns for the three stocks using all three risk factors and the same 5.5% risk-free rate c. Discuss the differences between the expected return estimates from the single-factor model and those from the multifactor model. Which estimates are most likely to be more useful in practice? d. Explain very briefly the role of portfolio managers and whether or not you feel they add any value to the regular investors? [2.5x4] You have been assigned the task of estimating the expected returns for three different stocks: Alpha, Beta, and Gamma. Based on your preliminary the historical risk premiums associated with three risk factors that could potentially be included in your calculations are: the excess return on a proxy for the market portfolio (MKT), and two variables capturing general macroeconomic exposures (GDP and EXPORT). These values are: AMKT=7.5%, AGDP = -0.3%, and AEXPORT = 0.6%. You have also estimated the following factor betas for all three stocks with respect to each of these potential risk factors STOCK Alpha Beta Gamma MKT 1.24 0.91 1.03 GDP -0.42 0.54 -0.09 EXPORT 0.02 0.21 -0.08 a. Calculate expected returns for the three stocks using just the MKT risk factor. Assume a risk-free rate of 5.5%. b. Calculate the expected returns for the three stocks using all three risk factors and the same 5.5% risk-free rate c. Discuss the differences between the expected return estimates from the single-factor model and those from the multifactor model. Which estimates are most likely to be more useful in practice? d. Explain very briefly the role of portfolio managers and whether or not you feel they add any value to the regular investors

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