Question: Consider a two factor APT. Two assets are in equilibrium and they have the following characteristics: b1 b2 E[r] Asset A 1.75 2.00 7.0% Asset

Consider a two factor APT. Two assets are in equilibrium and they have the following characteristics:

	b1	b2	E[r]
Asset A	1.75	2.00	7.0%
Asset B	3.50	0.25	8.0%

What are the risk premiums (lambda 1 and 2) of the two risk factors (b1 and b2) that are consistent with equilibrium? In this market assets with NO risk yield a return of 0%.

Please explain each step :)

thank you!!

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