Question: 2. You develop an APT model with two factors. The first pure (factor) portfolio has an expected retum of 14% and the second pure (factor)

2. You develop an APT model with two factors. The first

2. You develop an APT model with two factors. The first pure (factor) portfolio has an expected retum of 14% and the second pure (factor) portfolio has an expected return of 8.5% The risk free rate is 5%. Portfolio A is a well-diversified portfolio and has a beta of 0.7 on the first factor and beta of 0.2 on the second factor. What would the retum of portfolio A be if arbitrage opportunities do not exist? A. 12.00% B. 9.65% C. 4.85 rf=51=0,7Er=14)0(2=0,2Er=5)0 D. Cannot be determined because portfolio A is not the market portfolio

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