Consider the One-Factor APT

question 61

Multiple Choice

Consider the one-factor APT.Assume that two portfolios,A and B,are well diversified.The betas of portfolios A and B are 1.0 and 1.5,respectively.The expected returns on portfolios A and B are 19% and 24%,respectively.Assuming no arbitrage opportunities exist,the risk-free rate of return must be ____________.

• A) 4.0%
• B) 9.0%
• C) 14.0%
• D) 16.5%
• E) none of these

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Definitions:

Spiders

Arachnids characterized by eight legs, typically spinning webs to capture prey, and playing a significant role in controlling insect populations.

Spruce Budworm

A destructive North American caterpillar that infests conifer forests, notably spruce and fir trees, causing significant damage to these ecosystems during outbreak periods.

Pheromones

Substances created and emitted by an animal into its surroundings that influence the behavior or bodily functions of other members of the same species.

Synthesized

Created or formed by combining simpler substances or elements through a chemical process, leading to a new compound or product.