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

question 11

Multiple Choice

Consider the multifactor APT. There are two independent economic factors, F₁and F₂. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: $$\begin{array} { | l | l | l | l | } \hline \underline { \text { Portfolio } } & \underline { B \text { on } } \mathbf { E } \underline { 1 } & \underline { \beta \text { on } } \mathrm { F } _ { 2 } & \underline { \text { Expected Return } } \\\hline \mathrm { A } & 1.0 & 2.0 & 19 \% \\\hline \mathrm { B } & 2.0 & 0.0 & 12 \% \\\hline\end{array}$$
-Assuming no arbitrage opportunities exist,the risk premium on the factor F₁portfolio should be __________.

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

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Definitions:

Particular Product

A specific item or type of product that is distinct or unique in some way from other products.

Labor Rate Variance

The difference between the actual hourly wage paid to workers and the expected (or standard) wage.

Direct Labor Standard

A benchmark for the amount of labor time that should be consumed in the production of a good or service, used for costing and efficiency analysis.

Labor Rate Variance

The financial difference between the actual cost of labor and the budgeted (or standard) cost of labor, influenced by the wage rates paid and the amount of labor hours used.