GB550 Purdue Global University Unit 4 Arbitrage Pricing Theory Paper Assignment 2: Arbitrage Pricing Theory
The Arbitrage Pricing Theory helps calculate required stock returns considering a number of factors. In this Assignment, you will apply Arbitrage Pricing Theory to a business scenario.
Address the following question and problem in a Word document by listing the question or problem first and then your response.
Complete Chapter 25 question, 25-1, page 1,010
Complete Chapter 25 problem, 25-2, page 1,011
Directions for Submitting Assignment 2
Compose your Assignment in a Word document and save it as Username-GB550 Assignment 2-Unit#.doc (Example: TAllen-GB550 Assignment 2-Unit 4.doc). Submit your file by selecting the Unit 4: Assignment 2 Dropbox by the end of Unit 4.
Review the Assignment instructions and grading rubric GB550: Financial Management
Unit 4 Assignment 2
Arbitrage Pricing Theory – Details and Rubric
Address the following question and problem in a Word document by listing the question or problem first
and then your response.
Complete Chapter 25 question, 25-1, p. 1010
Complete Chapter 25 problem, 25-2, p. 1011
Unit 4 Assignment 2: Arbitrage Pricing Theory
Criteria for Assignment Grades
Provides correct and complete answers for questions and problems.
Clearly shows the reasoning and/or calculations used to arrive at the answer
Demonstrates excellent college-level organization and style; presents work in
Excel® or Microsoft Word, showing all necessary formulas and steps.
(25-2) An analyst has modeled the stock of Crisp Trucking using a two-factor APT model. The risk-
free rate is 6%, the expected return on the first factor (T1) is 12%, and the expected return on
the second factor (12) is 8%. If ba = 0.7 and biz = 0.9, what is Crisp’s required return?
Define the following terms, using graphs or equations to illustrate your answers wherever
a. Portfolio; feasible set; efficient portfolio; efficient frontier
b. Indifference curve; optimal portfolio
c. Capital Asset Pricing Model (CAPM); Capital Market Line (CML)
d. Characteristic line; beta coefficient, b
e. Arbitrage Pricing Theory (APT)
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