Question: Assume that a three-factor APT model is appropriate. The expected return on a portfolio with zero loading on all three factors is 5 percent. You

Assume that a three-factor APT model is appropriate. The expected return

Assume that a three-factor APT model is appropriate. The expected return on a portfolio with zero loading on all three factors is 5 percent. You are interested in an equally weighted portfolio of two stocks, A and B. The factor prices are indicated in the table below, along with the factor loadings for A and B. Compute the approximate expected return of the portfolio Factor 6iA 6i.BFactor Prices 0.3 0.5 0.2 0.6 1.0 0.7 0.07 0.09 0.02

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