Suppose the Returns on Security B Are Linearly Related to Four

Multiple Choice

Suppose the returns on Security B are linearly related to four risk factors: F1, F2, F3, and F4.The required rate of return on Security B can be determined as follows: .The risk-free rate is 5%.What is the risk premium for F4, if the required return of Security B is 20%, b1, b2, b3, and b4 are 0.5, 0.7, 0.6, and 0.9, respectively, and F1, F2, and F3 are 4.25%, 5.75%, and 6.5%, respectively?

A) 4.95%
B) 5.50%
C) 7.42%
D) 11.06%