 # pm

Michael Carr and Karen Bocock are analysts for the Portfolio Optimization Group. Carr and Bocock are discussing the firm’s mean variance optimization model for equity holdings and the pros and cons of using market model estimates or historical estimates as inputs to the model. Carr states, “One of the main concerns I have about the model is that whether we are using market model estimates or historical estimates, we are implicitly assuming that the historical relationship between the stock and the market is indicative of the future.” Bocock replies, “One of the main advantages to using the market model estimates is the fact that there are fewer parameters to estimate.” With regard to their statements about methods for computing the inputs for a mean-optimization model: A) Carr is incorrect; Bocock is incorrect. B) Carr is correct; Bocock is incorrect. C) Carr is correct; Bocock is correct. D) Carr is incorrect; Bocock is correct. Given a three-factor arbitrage pricing theory (APT) model, what is the expected return on the Premium Dividend Yield Fund? The factor risk premiums to factors 1, 2 and 3 are 8%, 12% and 5%, respectively. The fund has sensitivities to the factors 1, 2, and 3 of 2.0, 1.0 and 1.0, respectively. The risk-free rate is 3.0%. A) 33.0%. B) 28.0%. C) 36.0%. D) 50.0%.

C. C.

1. C 2. C

i’ll take A, C

C, C T/G

B, C

Carr is correct. Bocock is correct too - we need 3n + 2 only So C and C?

I would agree with C and C

for the first one- carr is correct - you hope that history repeats itself bocock - market model: e®=alpha + beta * Rm etc… --> C second : 0.08 * 2 + 0.12 + 0.05 + 0.03 = 0.36 C too C,C

C, C.

i also got C and C

C and C… that’s a big expected return.

cfaboston28 Wrote: ------------------------------------------------------- > answers are C and C Can you post official explanations dude?