the estimated factor sensitivities of terra energy to the five macroeconomic factors 543632
The estimated factor sensitivities of Terra Energy to the five macroeconomic factors in the Burmeister, Roll, and Ross (1994) article are given in the table below. The table also gives the market risk premiums to each of these same factors.
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|
Risk Premium (%) |
|
|
Confidence risk |
0.25 |
2.59 |
|
Time horizon risk |
0.3 |
-0.66 |
|
Inflation risk |
-0.45 |
-4.32 |
|
Business-cycle risk |
1.6 |
1.49 |
|
Market-timing risk |
0.8 |
3.61 |
Use the 5-factor BIRR APT model to calculate the required rate of return for Terra Energy using these estimates. The Treasury bill rate is 4.1 percent.
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