Consider the Multifactor Model APT with Two Factors

question 12

Multiple Choice

Consider the multifactor model APT with two factors.Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2.The risk premiums on the factor 1 and factor 2 portfolios are 1% and 7%,respectively.The risk-free rate of return is 7%.The expected return on portfolio A is __________if no arbitrage opportunities exist.

• A)13.5%
• B)15.0%
• C)16.5%
• D)23.0%
• E)none of the above

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Definitions:

Supply

The aggregate supply of a distinct item or service offered to purchasers.

Cloth

A material made from fibers, woven or knitted together, used to make garments and other items.

Severe Drought

An extended period of exceptionally low rainfall, leading to a shortage of water.

Wheat Crop

Wheat crop refers to the cultivation of wheat plants for the purpose of producing wheat grains, which are a staple food in many countries and used in making flour for bread, pasta, and other products.