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%.

---

Definitions:

Leadership Ethics

The principles and values guiding leaders in making decisions that have moral implications for their teams and organizations.

Ronald Heifetz

is a leadership expert known for his work on adaptive leadership, emphasizing the importance of leaders encouraging adaptability and learning in organizations to address complex challenges.

Care-Based Thinking

An approach that emphasizes empathy, compassion, and the well-being of others in decision-making processes.