Chapter 11: An Alternative View of Risk and Return: The Arbitrage Pricing Theory
11.1 Real GNPhalloween的音标 was higher than anticipated. Since returns are positively related to the level of GNP, returns should ri bad on this factor.
Inflation was exactly the amount anticipated. Since there was no surpri in this announcement, it will not affect Lewis-Striden returns.
Interest Rates are lower than anticipated. Since returns are negatively related to interest rates, the lower than expected rate is good news. Returns should ri due to interest rates.
The President’s death is bad news. Although the president was expected to retire, his retirement would not be effective for six months. During that period he would still contribute to the firm. His untimely death mean that tho contributions would not be made. Since he was generally considered an ast to the firm, his death will cau returns to fall.
The poor rearch results are also bad news. Since Lewis-Striden must continue to test the drug as early as expected. The delay will affect expected future earnings, and thus it will dampen returns now.
The rearch breakthrough is positive news for Lewis Striden. Since it was unexpected, it will cau returns to ri.
The competitor’s announcement is also unexpected, but it is not a welcome surpri. this announcement will lower the returns on Lewis-Striden.eva是什么
Systematic risk is risk that cannot be diversified away through formation of a portfolio. Generally, systematic risk factors are tho factors that affect a large number of firms in the market. Note tho factors do not have to equally affect the firms. The systematic factors in the list are real GNP, inflation and interest rates.
Unsystematic risk is the type of risk that can be diversified away through portfolio formation. Unsystematic risk factors are specific to the firm or industry. Su
adequate是什么意思rpris in the factors will affect the returns of the firm in which you are interested, but they will have no effect on the returns of firms in a different industry and perhaps little effect on other firms in the same industry. For Lewis- Striden, the unsystematic risk factors are the president’s ability to contribute to the firm, the rearch results and the competitor.
11.2 a. Systematic Risk = 0.042(4,480– 4,416) –1.4(4.3%– 3.1%)– 0.67(11.8% –9.5%)
= –0.53%
b. Unsystematic Risk = – 2.6%
c. Total Return = 9.5% – 0.53% – 2.6% = 6.37%
11.3kristen ritter
cumshot
11.4 a. Stock A:
Stock B:
Stock C:
b.
c. i.
陪同翻译
ii.
11.5
a. Since five stocks have the same expected returns and the same betas, the portfolio also has the same expected return and beta.
b.
11.6 To determine which investment investor would prefer, you must compute the variance of portfolios created by many stocks from either market. Note, becau you know that diversification is good, it is reasonable to assume that once an investor cho the market in which he or she will invest, he or she will buy many stocks in that market.
Known:
Assume: The weight of each stock is 1/N; that is, for all i.
If a portfolio is compod of N stocks each forming 1/N proportion of the portfolio, the return on the portfolio is 1/N times the sum of the returns on the N stocks. Recall that the
老外都这么说英语口语
return on each stock is 0.1+ F+ .
a.
Since Var, a risk aver investor will prefer to invest in the cond market.
b. Corr
Since Varaver investor will prefer to invest in the cond market.
英国留学 机构 c.
Since mango是什么意思, a risk aver investor will be indifferent between investing in the two market.
d. Indifference implies that the variances of the portfolio in the two markets are equal.
This is exactly the relationship ud in part c.
11.7
syntaxerror ii. APT Model:
APT Model shows that asts A & B are accurately priced but ast C is overpriced. Thus, rational investors will not hold ast C.
iii. If short lling is allowed, all rational investors will ll short ast C so that the price of ast C will decrea until no arbitrage opportunity exists. In other words, price of ast C should decrea until the return become 14.25%.
11.8 a. Let X= the proportion of curity of one in the portfolio and (1-X) = the
proportion of curity two in the portfolio.
The condition that the return of the portfolio does not depend onimplies:
Thus, P=(-1,2); i.e. ll short curity one and buy curity two.
b. Follow the same logic as in part a, we have
Where X is the proportion of curity three in the portfolio. Thus, ll short curity four and buy curity three.
this is a risk free portfolio!
c. The portfolio in part b provides a risk free return of 10% which is higher than the 5% return provided by the risk free curity. To take advantage of this opportunity, borrow at the risk free rate of 5% and invest the funds in a portfolio built by lling short curity four and buying curity three with weights (3,-2).
d. Assuming that the risk free curity will not change. The price of curity four ( that everyone is trying to ll short) will decrea and the price of curity three ( that everyone is trying to buy ) will increa. Hence the return of curity four will increa and the return of curity three will decrea.
