Security returns are determined by a 3-factor APT model. Return and risk premium on a portfolio representing factor 1 are 13% and 9%, respectively. Return on portfolio representing factor 2 and 3 are 18% and 12%, respectively. Compute the required return on security A and B and determine whether these securities are overvalued, undervalued, or fairly valued given the following information:

Security	Factor Beta			Estimated Return
	Factor 1	Factor 2	Factor 3
A	1.2	0.8	1.7	43%
B	1.7	1.8	0.9	48%

17. Security returns are determined by a 3-factor APT model. Return and risk premium on a portfolio representing factor 1 are 13% and 9%, respectively. Return on portfolio representing factor 2 and 3 are 18% and 12%, respectively. Compute the required return on security A and B and determine whether these securities are overvalued, undervalued, or fairly valued given the following information: (8 points) Security Factor Beta Factor 2 0.8 Factor 1 1.2 1.7 A B Factor 3 1.7 0.9 Estimated Return 43% 48% 1.8