Consider the Multifactor APT with Two Factors

question 25

Multiple Choice

Consider the multifactor APT with two factors. The risk premiums on the factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor-1, and a beta of 0.7 on factor-2. The expected return on stock A is 17%. If no arbitrage opportunities exist, the risk-free rate of return is

• A) 6.0%.
• B) 6.5%.
• C) 6.8%.
• D) 7.4%.

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Definitions:

Psychological Capital

A higher-order construct that includes an individual's positive psychological state of development, characterized by self-efficacy, optimism, hope, and resilience.

Organizational Behaviour

The study of individual and group dynamics within an organizational setting, focusing on how individuals interact and how these interactions affect the organization as a whole.

National Standard

A set of established norms or requirements within a country that dictates the quality and efficiency of products, services, or systems.

Mental Health

A state of well-being in which an individual realizes their own potential, can cope with the normal stresses of life, can work productively and fruitfully, and is able to make a contribution to their community.