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Consider the Multifactor APT with Two Factors

Question 31

Multiple Choice

Consider the multifactor APT with two factors.Stock A has an expected return of 16.4%,a beta of 1.4 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 6%.What is the risk-premium on factor 2 if no arbitrage opportunities exit?


A) 2%
B) 3%
C) 4%
D) 7.75%
E) none of the above

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