please answer the b part

Total 15 marks QUESTION TWO (15 MARKS) a) Consider the following simplified APT model: Factor Expected Risk Premium Market 6.4% Interest Rate -0.6% Yield Spread 5.1% Stock Factor Risk Exposures Market Interest Rate Stock (b1) (62) 1.0 -2.0 1.2 0 0.3 0.5 Yield Spread (63) -0.2 0.3 1.0 P2 P3 i) Calculate the expected return for the above stocks. Assume risk free rate is 5%. Consider a portfolio with equal investments in stocks P, P2, and P 3 (3 Marks) ii) What are the factor risk exposures for the portfolio? (2 Mark) iii) What is the portfolio's expected return? (2 Marks) b) A project has the following forecasted cash flows: Cash flows . C2 (100) 40 60 C3 50 The estimated project beta is 1.5. The market return rm is 16%, and the risk-free rate r fis 7%. i) Estimate the opportunity cost of capital and the project's PV (using the same rate to discount each cash flow). (2 Marks) ii) What are the certainty-equivalent cash flows in each year? (2 Marks) iii) What is the ratio of the certainty-equivalent cash flow to the expected cash flow in each year? (2 Marks) iv) Explain why this ratio declines. (2 Marks) Total 15 marks Pane of