Consider the Multifactor APT Assuming No Arbitrage Opportunities Exist,the Risk Premium on the Factor

question 74

Multiple Choice

Consider the multifactor APT.There are two independent economic factors,F₁ and F₂.The risk-free rate of return is 6%.The following information is available about two well-diversified portfolios: $$\begin{array}{l}\begin{array} { l l l l } \text { portfolio}&\beta \text { on F?}&\beta \text { on F?}&\text { expected return}\\A&1.0&2.0&19\%\\B&2.0&0.0&12\%\end{array}\end{array}$$
Assuming no arbitrage opportunities exist,the risk premium on the factor F₁ portfolio should be __________.

• A) 3%
• B) 4%
• C) 5%
• D) 6%
• E) none of these

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