Suppose stock returns can be explained by the following three-factor model:

R_i = R_F + ₁F₁ + ₂F_{2 3}F₃

Assume there is no firm-specific risk. The information for each stock is presented here:

	1	2	3
Stock A	2.25	1.25	1.00
Stock B	.96	1.85	.45
Stock C	.93	.51	1.60

The risk premiums for the factors are 8.1 percent, 7.3 percent, and 7.7 percent, respectively. You create a portfolio with 20 percent invested in Stock A , 20 percent invested in Stock B , and the remainder in Stock C?

What is the expression for the return on your portfolio?

	Factor Beta

Factor f1
Factor f2
factor f3

If the risk-free rate is 5.2 percent, what is the expected return on your portfolio?