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Construct a portfolio out of stocks a and b

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Assume that the APT holds for the following two stocks.

Stock A: rA, t = 9 + 4F1, t + 2F2, t + eA,t

Stock B: rB, t = 7 + 1F1, t + 4F2, t + eB,t

Riskfree: rf = 1

Construct a portfolio out of stocks A and B which is riskless in terms of factor 2.

How sensitive is this portfolio to factor 1 (that is, how many units of factor 1 risk)?

Reference no: EM132675735

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