3 Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT Assume risk free return of 3 5 (30 points) Factors are Market as factor 1 Size as factor 2 Book to market as factor3 Beta of portfolio 0 55 0 25 0 09 Risk premium for factors 5 4 6

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Question: 3. Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of

3. Calculate the expected return on a portfolio with the following characteristics in the context of arbitrage pricing theory, APT. Assume risk free return of 3.5 %. (30 points)

Factors are ?	Market as factor 1	Size as factor 2	Book to market as factor3
Beta of portfolio?	0.55	0.25	-0.09
Risk premium for factors	5%	4%	6%

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