Assume you have a 2-factor APT model. Factor 1 is GDP growth, with an expected
value of 3.5%. Factor 2 is the percentage change in unemployment, with an expected
value of -2%. The following factor sensitivities have been calculated for Project X: = 3.0; unemployment = -0.1. The risk-free rate is 4%. What does APT indicate
you should require as a return on Project X?

Question

Assume you have a 2-factor APT model. Factor 1 is GDP growth, with an expected
value of 3.5%. Factor 2 is the percentage change in unemployment, with an expected
value of -2%. The following factor sensitivities have been calculated for Project X:  = 3.0;  unemployment = -0.1. The risk-free rate is 4%. What does APT indicate
you should require as a return on Project X?

Quizplus · Accepted Answer

The Answer of Assume you have a 2-factor APT model. Factor 1 is GDP growth, with an expected
value of 3.5%. Factor 2 is the percentage change in unemployment, with an expected
value of -2%. The following factor sensitivities have been calculated for Project X:  = 3.0;  unemployment = -0.1. The risk-free rate is 4%. What does APT indicate
you should require as a return on Project X?

Assume You Have a 2-Factor APT Model