Consider the Multi-Factor APT with Two Factors

question 71

Multiple Choice

Consider the multi-factor APT with two factors.Portfolio A has a beta of 0.5 on factor 1 and a beta of 1.25 on factor 2.The risk premiums on the factors 1 and 2 portfolios are 1% and 7% respectively.The risk-free rate of return is 7%.The expected return on portfolio A is __________ if no arbitrage opportunities exist.

• A) 13.5%
• B) 15.0%
• C) 16.25%
• D) 23.0%

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Definitions:

Alternative Hypothesis

A hypothesis that contradicts the null hypothesis, indicating there is a significant difference between two or more sets of data.

Production Cost

Represents the total expense incurred in manufacturing a product or providing a service, including raw materials, labor, and overhead costs.

P-value

A statistical measure indicating the probability of obtaining the observed results, or more extreme results, assuming the null hypothesis is true.

Rejection Region

The range of values in a statistical test for which the null hypothesis is rejected if the test statistic falls within this region.