Write down the factor models for securities

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(1) Suppose that there are two independent economic factors, F12 and F. The following are three securities:

Security X Y Z

Beta on factor 1 1.5 2.2 1

Beta on factor 2 2.0 -0.2 3

Expected return 0.35 0.27 0.40

A) Write down the factor models for securities X, Y, and Z.

B) Write down the factor model for a portfolio composed of W1 units of X, W2 units of Y, and W3 units of Z.

C) Construct a portfolio whose beta on factor one is 1 and whose beta on factor two is 0. What is its expected return?

Reference no: EM133004714

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