Reference no: EM133119206
Assume that a three-factor APT describes the returns of all well-diversified portfolios, and that the three factors are unexpected changes in production (factor 1), a default spread factor (factor 2), and a Treasury term-spread factor (factor 3). Because of recent adverse events, over the next year, the market expects production to grow only by 1.5%, default spread to be 3.0%, and the term spread to be 1.8%. The pricing relationships for all well diversified portfolios are given by:
E(rA)=0.05+Bi1*0.07+Bi2*0.05-Bi3*0.04
All investors can borrow or lend at the risk free rate of 5%. Sigma(factor1) = Sigma (factor2) = Sigma (factor3) = 0.15. For simplicity, assume that the coefficient of correlation between any two factors is 0. The return process for portfolio A (which is well diversified) over the next year is:
rA=E(rA)+1.2*f1+0.5*f2-0.5*f3
Qusetion: If production grows by 3% over the next year, the default spread falls to 2.75%, and the term spread does exactly what the market expects, what will be the return on the portfolio A?
|
Best estimate of the current stock price
: The XYZ paid $1.15 dividend yesterday. It's growth rate is expected to be constant at 21.10% for 2 years, after which dividends are expected to grow at a rate o
|
|
Individual turn around time and the average turnaround time
: Report to each client its individual turn around time and the average turnaround time for all client processes
|
|
What is the theta of the option as the expiration time
: What is the theta of the option as the expiration time declines from 60 to 50 days? Answer to 2 decimal places.
|
|
Why the elevator speech is important
: Why the elevator speech is important and how it will help you prepare for recruiting events, interviews, and a career in the accounting profession
|
|
What will be the return on the portfolio a
: Assume that a three-factor APT describes the returns of all well-diversified portfolios, and that the three factors are unexpected changes in production (factor
|
|
Determine the return on stockholders equity
: Average common stockholders' equity 1,465,263. Determine (a) the return on stockholders' equity and (b) the return on common stockholders' equity
|
|
What are the operating cash flows in year
: Johnny's Lunches is considering purchasing a new, energy-efficient grill. The grill will cost $46,000 and will be depreciated straight-line over 3 years.
|
|
Draw the payoff diagram for these call options
: Draw the payoff diagram for these call options, labeling the strike price, breakeven point, and profit area.
|
|
Determine the asset turnover ratio
: A company reports the following: Average total assets (excluding long-term investments) 620,500. Determine the asset turnover ratio
|