18. A different analyst uses a twofactor APT model to evaluate expected returns and risk. The risk premiums on the factor 1 and factor 2 portfolios are 4.95% and 2.75%, respectively, while the riskfree rate of return remains at 2.75%. According to this APT analyst, your portfolio formed in question 14 has a beta on factor 1 of 5.50 and a beta on factor 2 of 3.50. According to APT, what is the expected return on your portfolio if no arbitrage opportunities exist? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

19. Now assume that your forecasting model of question 16 accurately projects the expected return of Stocks A and B and therefore your portfolio, and that the APT model of question 18 describes the fair rate of return for your portfolio. What is your best estimate of the alpha of your portfolio when using the APT model to determine a fair level of expected return? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.

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16. Your forecasting model projects an expected return of 26.00% for Stock A and an expected return of 45.00% for Stock B. Using the information in questions 13 and 14 and your forecasted expected returns, what is your best estimate of the alpha of your portfolio when using CAPM to determine a fair level of expected return? Enter your answer rounded to two decimal places. Do not enter % in the answer box. For example, if your answer is 0.12345 or 12.345% then enter as 12.35 in the answer box.