What fraction of this funds return variation

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Reference no: EM133560793

Q1.Consider the multifactor model APT with two factors. Portfolio A has a beta of 1.20 on factor
1 and a beta of 1.50 on factor 2. The risk premiums on the Factor 1 and Factor 2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 4%. If no arbitrage opportunities exist, what is the expected return on portfolio A?

Q2. Consider the single-factor APT. Stocks A and B have expected returns of 12% and 14%,
respectively. The risk-free rate of return is 5%. Stock B has a beta of 1.2. If arbitrage
opportunities are ruled out, what is the beta of stock A?

Q3. Answer questions about the following Fama-French three-factor regression for an investment
fund:
Factor Loading Standard Error t-stat p.value
Market (Rm-Rf) 1.06 0.021 50.088 0.000
Size (SMS) 0.84 0.037 22.405 0.000
value (HML) -0.27 0.03 -9.147 0.000
Alpha (a) -13.62bps 0.001 -1.592 0.113
Assume that the ???? 2 is 95.4%

Part (a) What kind of stocks does the fund invest in?
Part (b) What fraction of this fund's return variation can be explained by the three factors?

Q4.
What does each of the three forms of market efficiency postulate? (Please be concise!)

Q5.
List all forms of market efficiency that the momentum anomaly violates.

Reference no: EM133560793

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