Consider a Two-Factor APT Model Where the First Factor Is

Multiple Choice

Consider a two-factor APT model where the first factor is changes in the 30-year T-bond rate,and the second factor is the percent growth in GNP.Based on historical estimates you determine that the risk premium for the interest rate factor is 0.02,and the risk premium on the GNP factor is 0.03.For a particular asset,the response coefficient for the interest rate factor is -1.2,and the response coefficient for the GNP factor is 0.80.The rate of return on the zero-beta asset is 0.03.Calculate the expected return for the asset.

A) 5.0%
B) 2.4%
C) -3.0%
D) -2.4%
E) 3.0%