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Consider the Multifactor Model APT with Two Factors

Question 16

Multiple Choice

Consider the multifactor model APT with two factors. Portfolio A has a beta of 1.20 on factor 1 and a beta of 1.50 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 4%. The expected return on portfolio A is __________ if no arbitrage opportunities exist.


A) 13.5%
B) 15.0%
C) 15.7%
D) 23.0%

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