Question: Consider the multifactor Risk-return model with two factors. Stock A has an expected return of 17.6%, a beta of 1.45 on factor 1, and a

Consider the multifactor Risk-return model 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 riskfree rate of return is 5%. What is the risk-premium on factor 2 if no arbitrage opportunities exist? A. 3% B. 4% C. 9.26% D. 7.75%

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