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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Definitions:

Disc Brakes

A type of brake system where brake pads apply pressure to a disc or rotor attached to the wheel, slowing or stopping the vehicle.

Drum Brakes

A type of brake that uses friction caused by a set of shoes or pads that press outward against a rotating cylinder-shaped part called a drum.

Brake Fade

The reduction in braking power that occurs after repeated or sustained use, often due to overheating of the brake components.

Hydraulic

Relating to a system operated by the motion and pressure of fluids, used in various applications including machinery and vehicle brakes.