Question: How to do that Suppose under arbitrage pricing theory (APT), the mean asset returns are described as E{r} = 10+b111+212 = where by and b2

How to do that Suppose under arbitrage pricing theory (APT), the mean How to do that

Suppose under arbitrage pricing theory (APT), the mean asset returns are described as E{r} = 10+b111+212 = where by and b2 are factor loadings for two factors f and f2, and lo=3% is the risk free rate. Given two asset returns r1 = 0% + 0.8f1 + 0.372 + 1 r2 = = 2% + 0.1f1 + 0.672 + ez and mean factor returns E{f1} = 7% and E{f2} = 5%, what 11 is (to the nearest 0.001)? = = Selected Answer: [None Given] Correct Answer: 0.037

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