Consider the Multifactor Model APT with Three Factors

question 47

Multiple Choice

Consider the multifactor model APT with three factors.Portfolio A has a beta of 0.8 on factor 1,a beta of 1.1 on factor 2,and a beta of 1.25 on factor 3.The risk premiums on the factor 1,factor 2,and factor 3 are 3%,5% and 2%,respectively.The risk-free rate of return is 3%.The expected return on portfolio A is __________if no arbitrage opportunities exist.

• A)13.5%
• B)13.4%
• C)16.5%
• D)23.0%
• E)none of the above

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