Suppose the riskless return is 4½% and the factor sensitivities and factor return premiums for BioTherm and the S&P 500 index are given below. Using the APT, what should be the required returns for BioTherm shares and for the S&P 500 Stock index? Risk factor BioTherm factor sensitivity S&P 500 factor sensitivity Expected factor return premiums Confidence risk 0.15 0.30 2.70% Time horizon risk 0.70 0.56 ─0.70% Inflation risk ─0.40 ─0.35 ─4.30% Business-cycle risk 1.45 1.75 1.50% Market-timing risk 1.20 1.00 3.60%

Suppose the riskless return is 4½% and the factor sensitivities and factor return premiums for BioTherm and the S&P 500 index are given below. Using the APT, what should be the required returns for...

Suppose the riskless return is 4½% and the factor sensitivities and factor return premiums for BioTherm and the S&P 500 index are given below. Using the APT, what should be the required returns for BioTherm shares and for the S&P 500 Stock index?

*Risk factor*	*BioTherm factor sensitivity*	*S&P 500 factor sensitivity*	*Expected factor* *return premiums*
Confidence risk	0.15	0.30	2.70%
Time horizon risk	0.70	0.56	─0.70%
Inflation risk	─0.40	─0.35	─4.30%
Business-cycle risk	1.45	1.75	1.50%
Market-timing risk	1.20	1.00	3.60%

Jun 07, 2022

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Suppose the riskless return is 4½% and the factor sensitivities and factor return premiums for BioTherm and the S&P 500 index are given below. Using the APT, what should be the required returns for...

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