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:

Functional Departmentation

The process of grouping organizational activities into separate units or departments based on functions such as marketing, finance, and human resources.

Professional Development

Ongoing learning and training activities that individuals engage in to enhance their skills, knowledge, and competencies for career advancement.

Economies of Scale

Cost advantages that enterprises obtain due to their scale of operation, with cost per unit of output generally decreasing with increasing scale.

Matrix Structure

An organizational design that combines two or more types of structures, typically functional and product-based, to leverage the advantages of both.