Question: ARBITRAGE PRICING THEORY Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1,

ARBITRAGE PRICING THEORY

Consider the multifactor APT with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1, and a beta of .86 on factor 2. The risk premium on the factor 1 portfolio is 3.2%. The risk-free rate of return is 5%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?

Select one:

a.9.26%

b.3%

c.4%

d.7.75%

I got this question wrong and have tried working it back to the right answer of 9.26% but failing. Could you please show me all the workings so I can see which step I got wrong? ? ? thank you

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