which concept is this question testing? following, question, expected, testing

defour44

I have no idea whats this question is on about?
are the inputs in APT the differentials between expected change and actual change?
A two-stock portfolio consists of the following:
The portfolio consists of stock of Green Company (portfolio weight 30%) and Blue Company (portfolio weight 70%).
Green’s expected return is 12%, Blue’s is 8%.
Interest rates are expected to be 6%.
Oil prices are expected to rise 2%.
The two-factor model for Green Company is R(green) = 12% ? 0.5 Fint ? 0.5 Foil + egreen
The two-factor model for Blue Company is R(blue) = 8% + 0.8 Fint + 0.4 Foil + eblue
If interest rates are actually 9% and oil prices do not rise, the return on the portfolio will be:
A) 12.89%.
B) 10.55%.
C) 10.17%.
Your answer: A was incorrect. The correct answer was C) 10.17%.
R(green) is [12 ? (0.5

prav_Cfa7

i dont think this is the APT. I think its the macroeconomic multifactor model. In tbis model, only surprises affect the retrun. So if rates had been what wer expected, there would be no additional return fro minterest rates. Since there was a surprise of 3%, you plug in 3% into the equation. Same with oil (in this case -2% surprise)