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Consider the Multifactor Model APT with Two Factors

Question 12

Multiple Choice

Consider the multifactor model APT with two factors.Portfolio A has a beta of 0.75 on factor 1 and a beta of 1.25 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 7%.The expected return on portfolio A is __________if no arbitrage opportunities exist.


A) 13.5%
B) 15.0%
C) 16.5%
D) 23.0%
E) none of the above

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