Consider the multifactor APT. There are two independent economic factors, F₁ and F₂. The risk-free rate of return is 6%. The following information is available about two well-diversified portfolios: $\text { Portfolio }$ Assuming no arbitrage opportunities exist, the risk premium on the factor F₁ portfolio should be A) 3%. B) 4%. C) 5%. D) 6%.

Question

Quizplus · Accepted Answer

The risk premium on the factor F1 portfolio is determined by the difference in expected returns of the portfolios, adjusted for their sensitivities to the factors. Given no arbitrage, the risk premium on F1 is 3%.

Consider the Multifactor APT Portfolio \text { Portfolio } Portfolio Assuming No Arbitrage Opportunities Exist, the Risk Premium on the F1

Consider the Multifactor APT $\text { Portfolio }$ Assuming No Arbitrage Opportunities Exist, the Risk Premium on the F₁