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Consider the Multi-Factor APT with Two Factors

Question 71

Multiple Choice

Consider the multi-factor APT with two factors.Portfolio A has a beta of 0.5 on factor 1 and a beta of 1.25 on factor 2.The risk premiums on the factors 1 and 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) 16.25%
D) 23.0%

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