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Homework6__Fall_722-1 - Securities Market and Investments...

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Securities Market and Investments, Fall 2011: Homework 6 Fousseni Chabi-Yo * Fisher College of Business Due Date: November 21st, 2011 Instructions Work in a group of 1 – 4 people. Each group hands in one copy of their answers. Be brief and to the point, but be sure to fully explain your logic. Do not print data, entire spreadsheets, or programs — instead, copy the relevant statistics to a table. All tables and charts should have legends and explanations. * chabi-yo [email protected] 1
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Problem Sets 1. Why does the APT only hold approximately for a well diversified portfolio? 2. Suppose there are two risk factors for all securities: the excess return on the market portfolio ( r Mt - r ft ) and a crime factor portfolio ( r gt - r jt ). Suppose Honda’s loading on the market is 1.05 and Honda’s loading the crime factor portfolio is -0.40. What is the expected excess return for Honda if E ( r Mt ) - r ft = 7% and E ( r gt - r jt ) = - 4 . 2%? 3. According to the CAPM are value stocks riskier than growth stocks (refer to the tables in the lecture notes)?
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