Question: 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

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 4.75% and 2.95%, respectively, while the riskfree rate of return remains at 3.00%. According to this APT analyst, your portfolio formed in question 14 has a beta on factor 1 of 5.25 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.

For reference:

14. Stock A has a beta of 1.95 and a standard deviation of return of 42%. Stock B has a beta of 3.75 and a standard deviation of return of 70%. Assume that you form a portfolio that is 60% invested in Stock A and 40% invested in Stock B.

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