USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S)
Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas).
$USE THE INFORMATION BELOW FOR THE FOLLOWING PROBLEM(S) Consider the three stocks, stock X, stock Y, and stock Z, that have the following factor loadings (or factor betas). The zero-beta return ( \lambda 0) = 3 percent, and the risk premia are \lambda 1 = 10 percent and \lambda 2 = 8 percent. Assume that all three stocks are currently priced at $50. -Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The weighted exposure to risk factor 1 for stocks X, Y, and Z are A) 0.50, -1.0, 0.50. B) -0.50, 1.0, -0.50. C) 0.60, -0.85, 0.25. D) -0.275, 0.10, 0.175. E) 0.40, -0.75, 0.25.$ The zero-beta return (

\lambda

0) = 3 percent, and the risk premia are

\lambda

1 = 10 percent and

\lambda

2 = 8 percent. Assume that all three stocks are currently priced at $50.
-Refer to Exhibit 7.9. Assume that you wish to create a portfolio with no net wealth invested. The portfolio that achieves this has 50 percent in stock X, -100 percent in stock Y, and 50 percent in stock Z. The weighted exposure to risk factor 1 for stocks X, Y, and Z are
A) 0.50, -1.0, 0.50.
B) -0.50, 1.0, -0.50.
C) 0.60, -0.85, 0.25.
D) -0.275, 0.10, 0.175.
E) 0.40, -0.75, 0.25.

Assume That as a Portfolio Manager the Beta of Your

Multiple Choice

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