Consider the Multifactor APT with Two Factors

question 41

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%
• E) none of these

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