Consider the Multifactor Model APT with Two Factors

question 27

Multiple Choice

Consider the multifactor model APT with two factors. Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 on factor 2. The risk premiums on the factor-1 and factor-2 portfolios are 1% and 7%, respectively. The risk-free rate of return is 7%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.

• A) 13.5%
• B) 15.0%
• C) 16.5%
• D) 23.0%

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Definitions:

Mental Lazy

A tendency to avoid cognitively demanding tasks, opting for simpler, less effortful thinking processes.

Motivation

The process of generating and expending energy toward achieving or avoiding some outcome.

Objective Facts

information verified to be true, independent of personal feelings, interpretations, or prejudice.

Role of Metaphor

The function metaphors serve in communication and thought, helping to convey complex ideas through comparative, symbolic language.