16.Given a three-factor arbitrage pricing theory (APT) model, what is the expected return on the Premium Dividend Yield Fund? §
The factor risk premiums to factors 1, 2 and 3 are 8%, 12% and 5%, respectively. §
The fund has sensitivities to the factors 1, 2, and 3 of 2.0, 1.0 and 1.0, respectively. §
The risk-free rate is 3.0%. A) 36.0%. B) 33.0%. C) 28.0%. D) 50.0%. The correct answer was A) The expected return on the Premium Dividend Yield Fund is 3% + (8.0%)(2.0) + (12.0%)(1.0) + (5.0%)(1.0) = 36.0%. 17.Marcie Deiner is an investment manager with G&G Investment Corporation. She works with a variety of clients who differ in terms of experience, risk aversion and wealth. Deiner recently attended a seminar on multifactor analysis. Among other things, the seminar taught how the assumptions concerning the Arbitrage Pricing Theory model are different from those of the CAPM. One of the examples used in the seminar is below. E(Ri) = Rf + f1 Bi,1 + f2 Bi,2 + f3 Bi,3. where: f1 =3.0%, f2 = -40.0%, and f3 =50.0%. Beta estimates for Growth and Value funds for a three factor model |
| Factor 1 | Factor 2 | Factor 3 | Betas for Growth: | 0.5 | 0.7 | 1.2 | Betas for Value: | 0.2 | 1.8 | 0.6 |
For the model used as an example in the seminar, if the T-bill rate is 3.5 percent, what are the expected returns for the Growth and Value Funds? A) E(RGrowth): 3.1%. E(RValue): -3.16%. B) E(RGrowth): 93.0%. E(RValue): 106.1%. C) E(RGrowth): 33.5%. E(RValue): -41.4%. D) E(RGrowth): 37.0%. E(RValue): -37.9%. The correct answer was D) E(RGrowth)= 0.035 + 0.03(0.5) – 0.4(0.7) + 0.5(1.2) = 0.035 + 0.015 - 0.28 + 0.6 = 0.37 or 37.0% E(RValue)= 0.035 + 0.03(0.2) – 0.4(1.8) + 0.5(0.6) = 0.035 + 0.006 – 0.72 + 0.30 = -0.379 or -37.9% 18.All of the following are assumptions of the Arbitrage Pricing Theory (APT) model EXCEPT: A) no arbitrage opportunities are available to investors because capital markets are perfectly competitive. B) a large number of available assets for investment allow investors to eliminate non-systematic risk through diversification. C) asset returns are normally distributed. D) asset returns are explained by a factor model. The correct answer was C) It is not necessary to assume that asset returns are normally distributed. The Arbitrage Pricing Theory (APT) Model allows for different characteristics of return distributions to be captured by the factors in the model. The APT model also does not require the existence of a market portfolio that is mean-variance efficient. These assumptions are necessary for the Capital Asset Pricing Model (CAPM). The APT has three less restrictive assumptions: 1. Asset returns are explained by a k factor model.
2. No arbitrage opportunities exist for investors, because capital markets are perfectly competitive.
3. Investors can eliminate non-systematic or firm-specific risk through diversification. | 
发表于 2008-4-16 14:48
|