Suppose that the world is described by a two-factor model, so stock returns depend on two systematic risk factors, F, and F2, which have mean o. = 0.02 + 5F, +7F2 + ẽ1 Ť2 = 0.15 + F, +4F2 + ẽ2 řz = 0.03 + 2F,+F2 + ẽz 1 а) Compute the portfolio weights and expected returns for the pure factor portfolios. b) beta on both factors). What is its expected return? Compute the portfolio weights which produce a portfolio with no systematic risk (i.e. o c) Compute the factor risk premia for factors 1 and 2. If an asset has factor beta 3 with factor 1 and factor beta 2 with factor 2, what should its d) expected return be under arbitrage pricing theory?

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: 8p 1.70 1.30 0.85 1.00 Portfolio X Y Z Market Risk-free Rp 11.5% 10.5 7.2 10.9 4.6 R-squared op 38.00% 33.00 23.00 28.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.76. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places.

Consider the following performance data for a portfolio manager:               Benchmark Portfolio Index Portfolio     Weight Weight Return Return   Stocks 0.65 0.7 0.11 0.12   Bonds 0.3 0.25 0.07 0.08   Cash 0.05 0.05 0.03 0.025   a.Calculate the percentage return that can be attributed to the asset allocation decision. b.Calculate the percentage return that can be attributed to the security selection decision.

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio X Y Z Market Risk-free Rp 14.0% 13.0 .8.5 12.0 7.2 Ор 39.00% 34.00 24.00 29.00 0 Bp 1.50 1.15 0.90 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.90. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. R-squared

The following figures show the optimal portfolio choice for two investors with different levels of risk-aversion graphically. Which statement is correct? E[R] 0.3 0.25 0.2 0.15 0.1 0.05 0 0 0.05 0.1 0.15 Figure 1 0.2 0.25 0.3 0.35 0.4 0.45 o (R) E[R] Figure (1) shows an investor with a conservative investment behavior. 0.3 0.25 0.2 0.15 0.1 0.05 0 0 Figure (2) shows an investor that borrows in risk-free rate and invests in the risky asset. 0.05 0.1 0.15 In the optimal point of both figures, the highest indifference curve is tangent to the efficient frontier. O In Figure (1), more aggressive investment decision led to a higher Sharpe ratio. Figure 2 0.2 0.25 o(R) 0.3 0.35 0.4 0.45

Assume that using the Security Market Line(SML) the required rate of return(RA)on stock A is found to be halfof the required return (RB) on stock B. The risk-free rate (Rf) is one-fourthof the required return on A. Return on market portfolio is denoted by RM. Find the ratioof betaof A(A) tobeta of B(B). Thank you for your help.

You are given the following information concerning three portfolios, the market portfolio, and the risk-free asset: Portfolio Y Z Market Risk-free Rp 13.5% бр 35.00% 12.5 30.00 7.1 20.00 10.6 4.4 25.00 0 Вр 1.55 1.20 0.80 1.00 0 Assume that the correlation of returns on Portfolio Y to returns on the market is 0.70. What percentage of Portfolio Y's return is driven by the market? Note: Enter your answer as a decimal not a percentage. Round your answer to 4 decimal places. × Answer is complete but not entirely correct. R-squared 0.9785

We consider a market with N risky assets. The following table shows the information of some portfolios constructed by these risky assets. Expected return Portfolio 1 (W₁) Portfolio 2 (W₂) Portfolio 3 (W3) Portfolio 4 (W4) 0.0321 0.0607 0.1263 0.1322 Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 Standard deviation of the return The correlation coefficient of returns of these portfolios are given in the following table: Portfolio 1 Portfolio 2 Portfolio 3 Portfolio 4 0.731672 1 0.731672 1 0.62553 0.002018 -0.02533 0.662908 0.093207 0.088882 0.217899 0.212048 0.002018 0.62553 1 0.915149 You are also given that two of these portfolios are efficient. -0.02533 0.662908 0.915149 1 Question (a) Using the above information, determine the global minimum variance portfolio. Express your answer in terms of W₁, W2, W3 and W₁.

According to CAPM, the expected rate of return of a portfolio with a beta of 1.0 and an alpha of 0 is:a. Between rM and rf .b. The risk-free rate, rf .c. β(rM − rf).d. The expected return on the market, rM.

Consider the following graph.   According to Markowitz’ portfolio theory, which point on the graph represents optimal portfolio?       C     A     B     D