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

Ri = RF + 1F1 + 2F2 3F3 Assume there is no firm-specific risk. The information for each stock is presented here:

B1 B2 B3 Stock A 2.10 1.10 .85

Stock B .90 1.70 -.30

Stock C .90 -.47 1.56

The risk premiums for the factors are 7.8 percent, 7 percent, and 7.4 percent, respectively. You create a portfolio with 30 percent invested in Stock A, 30 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 4.9 percent, what is the expected return on your portfolio?

Expected return ________%