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  3. imagine that there are only two pervasive macroeco

Imagine that there are only two pervasive macroeconomic factors. Investment X and Y have the...

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Finance

  2. Imagine that there are only two pervasive macroeconomic factors. Investment X and Y have the following sensitivities to these factors b1 and b2.

    X: b1=1.4 and b2=0.1

    Y: b1=-0.3 and b2=0.75

    We assume that the expected risk premium is 6% on factor 1 and 12% on factor 2.

    According to APT, what is the risk premium on each of the stocks (risk premium X, risk premium Y, risk premium Z)?

    [Hint: ]

    1. (8.5%, 8.2%)

    2. (6.8%,10.2%)

    3. (9.6%, 7.2%)

    4. (10.4%, 6.8%)

    5. (8.2%, 9.5%)

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