Sihle has devised the following APT model for a well-diversified portfolio: Factor Inflation R/$ exchange rate Factor beta 1.5 0.92 (a) If the risk-free rate is 1%, calculate the expected return on the portfolio using the APT model. (2 marks) Factor Inflation R/$ exchange rate Factor Return 4% 7% (b) The market expectations for the two factors differed from the actual values as shown in the table below. Calculate the revised expected return on the portfolio. (3 marks) Expected Value 3% -1% Actual Value 3.6% -2% Princess has identified that the expected return on a well-diversified portfolio is 8.5%. The risk- free rate is 0.75%. The portfolio has a beta of 1.4 on factor 1 and a beta 20% lower on factor 2. If the risk premium on factor 1 is 5%, what is the risk premium on factor 2? (2 marks)