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 percent.What is the risk premium for F4,if the required return of Security B is 20 percent,b1,b2,b3,and b4 are 0.5,0.7,0.6,and 0.9,respectively,and F1,F2,and F3 are 4.25 percent,5.75 percent,and 6.5 percent,respectively?

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