Consider the Multifactor APT

question 9

Multiple Choice

Consider the multifactor APT. The risk premiums on the factor 1 and factor 2 portfolios are 6% and 4%, respectively. The risk-free rate of return is 4%. Stock A has an expected return of 16% and a beta on factor-1 of 1.3. Stock A has a beta on factor-2 of

• A) 1.33.
• B) 1.05.
• C) 1.67.
• D) 2.00.

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Definitions:

Decision-making Process

The series of steps taken by individuals or organizations to choose a course of action among several alternatives.

Management Accountant

A professional specializing in accounting who focuses on internal financial processes, budgeting, and cost analysis to aid management decision-making.

Alternatives

Options or choices available in a given situation.

Joint Costs

Costs incurred in the process of producing two or more products simultaneously up to the point of separation.