Question: Four risk factors F1 F2 F3 and F4 have been
Four risk factors, F1, F2, F3, and F4, have been identified to determine the required rate of return, as follows: ER I = a0 + bi1F1 + bi2F2 + bi3F3 + bi4F4, where a0 is the expected return on a security with zero systematic risk. Calculate the required rate of return of a portfolio where bi1, bi2, bi3, and bi4 are 0.4, 0.5, 1, and 1.5, respectively; RF = 8 percent; F1 = 10 percent; F2 = 5 percent; F3 = 9 percent; and F4 = 12 percent.
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