Question: Consider the multifactor APT with two factors. The risk premiums on factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has

Consider the multifactor APT with two factors. The risk premiums on factor 1 and factor 2 portfolios are 5% and 6%, respectively. Stock A has a beta of 1.2 on factor 1 , and a beta of 0.7 on factor 2 . The expected return on stock A is 12.5%. If no arbitrage opportunities exist, what is the risk-free rate of return? 6.8% 12.7% 2.3% 20.1% None of the above

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