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

question 64

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 F₂ portfolio should be ___________.

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

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Definitions:

Abandoned Mining Waste

Refers to the remains and by-products left behind after the closure or abandonment of mines, which can include hazardous materials.

Agricultural Field

Land used for farming crops or raising livestock, essential for producing food, fiber, and other agricultural products.

Bottom-up Processes

Ecological or systemic processes driven by primary producers or lower trophic levels influencing the structure and function of ecosystems.

Predators

Organisms that hunt, kill, and consume other organisms (prey) for nutrients and energy.