Question: Consider the multifactor APT with two factors. Stock A has an expected return of 14%, a beta of 1.2 on factor 1 and a beta

Consider the multifactor APT with two factors. Stock A has an expected return of 14%, a beta of 1.2 on factor 1 and a beta of .8 on factor 2. The risk premium on the factor 1 portfolio is 3%. The risk-free rate of return is 4%. What is the risk-premium on factor 2 if no arbitrage opportunities exist?

A. 8%

B. 6%

C. 2%

D. 4%

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