quiz1key - b. Assume there is a portfolio D with D1 = 1.75....

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AP/ADMS 4540 Financial Management Winter 2012 Instructor: Dr. William Lim Quiz 1 (Section N) a. Suppose portfolio returns in the Asian market can be described by a 2-factor model with intercept (3 factors including intercept). You have been tasked to determine the equation that describes the equilibrium returns for the following portfolios: ------------------------------------------------------------------------------------- Portfolio Expected Return (%) β i1 β i2 ------------------------------------------------------------------------------------- A 10.0 0.5 0.75 B 14.0 1.5 0.5 C 25.0 2.0 1.5 -------------------------------------------------------------------------------------
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Unformatted text preview: b. Assume there is a portfolio D with D1 = 1.75. What is the equilibrium return on portfolio D? What is the sensitivity of portfolio D to factor 2 D2 ? What is the relationship of portfolio D to factor 2? c. Suppose there is another portfolio E with the following characteristics: Actual Return = 26%; E1 = 2.0 and E2 = 1.5. Would you recommend investment in portfolio E? Why? AP/ADMS 4540 Financial Management Winter 2012 Instructor: Dr. William Lim Quiz 1 (Section M) Note: You must show your working steps from the equation for portfolio variance to receive full credit...
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This note was uploaded on 03/24/2012 for the course ADMS ADMS 4540 taught by Professor Lie during the Winter '11 term at York University.

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quiz1key - b. Assume there is a portfolio D with D1 = 1.75....

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