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:

Scientific Management

A management theory developed by F.W. Taylor, emphasizing efficiency and productivity by systematically studying work processes and establishing standards.

Vertical Loading

Vertical Loading is a job design technique that involves adding more responsibilities and decision-making authority to an employee's role.

Overspecialized Work

Work that is highly focused or narrow in scope, potentially limiting a person’s skills and adaptability to other professional areas.

Task Activities

Specific actions or operations performed by individuals or groups to achieve a particular objective.