Presume that the market doesn''t allow arbitrage strategies

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Reference no: EM1376798

Random returns for two well-expanded portfolios at time t are given by

R(a)=0.27+1.6F(1)+0.8F(2) R(b)=0.16+0.8F(1)+1.1F(2) where F(1) and F(2) are unexpected parts of factor 1 and 2 returns correspondingly.(one can think that factor one is GDP as well as factor two is an inflation). The risk free rate is 3.0% presume that the market doesn't allow arbitrage strategies and therefore the two-factor APT holds. Find the expected revenues on factor 1 and factor 2

Reference no: EM1376798

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