Consider the Multifactor APT with Two Factors

question 60

Multiple Choice

Consider the multifactor APT with two factors. Stock A has an expected return of 14%, a beta of 1.2 on factor 1, and a beta of .8 on factor 2. The risk premium on the factor-1 portfolio is 3%. The risk-free rate of return is 4%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?

• A) 2%
• B) 4%
• C) 6%
• D) 8%

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Definitions:

Internal Monologue

A person's inner voice that narrates thoughts and feelings, often reflecting conscientious or reflective thinking.

Self-Talk

The inner dialogue that a person has with themselves, which can influence their attitudes and behaviors.

Conscious Level

The degree of awareness an individual has about their thoughts, feelings, and surroundings.

Posttraumatic Growth

Posttraumatic growth is the positive psychological change experienced as a result of the struggle with highly challenging life circumstances, leading to a significant transformation in personal development.