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In: Economics

The following macroeconomic projected return models π = inflation and GDP = GDP growth RBAH=9.2+0.2Fπ+ 0.8FGDP+ϵ...

  1. The following macroeconomic projected return models

π = inflation and GDP = GDP growth

RBAH=9.2+0.2Fπ+ 0.8FGDP+ϵ

RFIVN=11.6-0.6Fπ+ 1.8 FGDP+ϵ

RSP500=8.8-1.2 Fπ+ 1.6 FGDP+ϵ

  1. Expected inflation is 2.3% and actual inflation may be greater by 0.4%, calculate the impact on the S&P500 projected return ( How would the projected return change)
  2. Create a portfolio invested in Boaz Allan (BAH) and Five9 (FIVN) with the same exposure to GDP as the S&P500.
  3. Create a portfolio invested in Boaz Allan (BAH) and Five9 (FIVN) to diversify away exposure to inflation.

  1. Given the following information

E(R )

S

BAH

8%

10%

FIVN

14%

16%

SSNC

11%

11.78%

             Corr (Bah,FIVN) = 0.4

Does an arbitrage opportunity exist?

Please include work

This is all the information provided for the question.

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Expert Solution

Rahul Sunny answered 1 year ago
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