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: Assuming no arbitrage opportunities exist, the risk premium on the factor F₁ portfolio should be A)3%. B)4%. C)5%. D)6%.

Question

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2A: 38% = 12% + 2.0(RP1) + 4.0(RP2); B: 12% = 6% + 2.0(RP1) + 0.0(RP2); 26% = 6% + 4.0(RP2); RP2 = 5; A: 19% = 6% + RP1 + 2.0(5); RP1 = 3%.

Consider the Multifactor APT