Consider the Multifactor APT with Two Factors

question 33

Multiple Choice

Consider the multifactor APT with two factors.Stock A has an expected return of 17.6%,a beta of 1.45 on factor 1 and a beta of .86 on factor 2.The risk premium on the factor 1 portfolio is 3.2%.The risk-free rate of return is 5%.What is the risk-premium on factor 2 if no arbitrage opportunities exit?

• A)9.26%
• B)3%
• C)4%
• D)7.75%
• E)none of the above

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