Multiple Choice
Consider the multifactor APT with two factors. Stock A has an expected return of 14%, a beta of 1.2 on factor 1, and a beta of .8 on factor 2. The risk premium on the factor-1 portfolio is 3%. The risk-free rate of return is 4%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?
A) 2%
B) 4%
C) 6%
D) 8%
Correct Answer:
Verified
Correct Answer:
Verified
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