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

SkipE99

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