Consider the Multifactor APT

question 3

Multiple Choice

Consider the multifactor APT.The risk premiums on the factor 1 and factor 2 portfolios are 6% and 4%,respectively.The risk-free rate of return is 4%.Stock A has an expected return of 16% and a beta on factor 1 of 1.3.Stock A has a beta on factor 2 of ________.

• A)1.33
• B)1.05
• C)1.67
• D)2.00
• E)none of the above

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Definitions:

Skewed Negatively

A description of a distribution of data where the majority of values are concentrated on the right of the mean, leading to a longer tail on the left side.

Distribution

The way in which something is shared out among a group or spread over an area.

Values

Quantitative or qualitative measurements, attributes, or properties of variables or items.

Class Intervals

Ranges of values within which data points are grouped for frequency distribution purposes.