Consider the Multifactor APT Assuming No Arbitrage Opportunities Exist, the Risk Premium on the F₁

question 48

Multiple Choice

Consider the multifactor APT. There are two independent economic factors, F₁ and F₂. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: $$\begin{array} { c c c c } \text { Portfolio } & \beta \text { on } \mathrm { F } _ { 1 } & \beta \text { on } \mathrm { F } _ { 2 } & \begin{array} { c } \text { Expected } \\\text { Return }\end{array} \\\text { A } & 1.0 & 2.0 & 19 \% \\\text { B } & 2.0 & 0.0 & 12 \% \\\hline\end{array}$$ Assuming no arbitrage opportunities exist, the risk premium on the factor F₂ portfolio should be

• A) 3%.
• B) 4%.
• C) 5%.
• D) 6%.

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Definitions:

Plasma Membrane

The semipermeable membrane surrounding the cytoplasm of a cell, responsible for controlling the passage of substances in and out.

Bilayer

A bilayer typically refers to a double layer of closely packed atoms or molecules, the most common example being the lipid bilayer of cell membranes that forms the cell's outer boundary.

Phospholipids

A class of lipids that are a major component of all cell membranes as they can form lipid bilayers.

Concentration Gradient

A term describing the difference in the concentration of a substance between two areas, which can drive diffusion.