Consider the Multifactor APT with Two Factors

question 39

Multiple Choice

Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1, and a beta of .86 on factor 2. The risk premium on the factor 1 portfolio is 3.2%. The risk-free rate of return is 5%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?

• A) 9.26%
• B) 3%
• C) 4%
• D) 7.75%

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Definitions:

Contraindications

Specific situations, conditions, or factors that increase the risks associated with the use of a particular drug, procedure, or therapy, making it potentially harmful or dangerous.

Usual Dosage

The standard amount of a medication prescribed to be taken at one time or over a specified period, as recommended based on common medical practice.

Antineoplastic

Agents used in the treatment of cancer by stopping the growth and spread of malignant cells.

Trade Name

The name a manufacturer assigns to a given medication compound for marketing purposes or to simplify referencing the medication.