 # Book 6 2am Q11 - anyone?

I’m looking at the answer for this question on Schweser and absolutely don’t have a clue. Can anyone help? They’re asking for the intercept and come up with the answer of 0.155. The line: E(REF) = aEF + 0 + 0 + 0 = 0.12, so aEF = 0.155 (???) leaves me completely blank. If someone can explain this to me, that would help a LOT.

I emailed schweser on this and Jodi told me they used the formula from Question #8. Honestly, I’m still not getting it either. Sorry dude.

Thank god, I was looking at it and thought I lost it.

completely off the top of my head, i think the answers said that the intercept is the expected return from the APT model…is that what the answer to #8 was?

You can get it using APT model 4% + 5% * 1.5 + 2 % 2 % = 15.5 %

That’s Q8 disptra, on Q11 they ask you to give the intercept value. There the outcome is … 15,5% . haven’t got a clue why.

The intercept for a 2 factor macroeconomic model is the Expected return from APT thts how u use 15.5 % The line: E(REF) = aEF + 0 + 0 + 0 = 0.12, so aEF = 0.155 I saw that too and eventually concluded that the 0.12 is a typo. It would read: The line: E(REF) = aEF + 0 + 0 + 0 = 0.155, so aEF = 0.155

that is right. You can use APT to calculate intercept of macro model because intercept of marco model is expected return.

disptra Wrote: ------------------------------------------------------- > that is right. You can use APT to calculate > intercept of macro model because intercept of > marco model is expected return. If the intercept in the macroeconomic factor model equals E®, why can’t we use CAPM E®?

Lisa Marie Wrote: ------------------------------------------------------- > disptra Wrote: > -------------------------------------------------- > ----- > > that is right. You can use APT to calculate > > intercept of macro model because intercept of > > marco model is expected return. > > If the intercept in the macroeconomic factor model > equals E®, why can’t we use CAPM E®? Yes. You can use CAPM as well. You can view CAPM as one factor APT in this context.

^^^Since CAPM E® was 10.4, this would have produced the incorrect answer in this case, no?

I think APT is generally better than CAPM. Since it is given, use APT first. I think Schweser does say use APT somewhere in the book.