Question: Suppose that two stocks whose rates of return are given by the two-factor arbitrage pricing model r= a +31 +42 r2 = 02 +241

Suppose that two stocks whose rates of return are given by the two-factor arbitrage pricing model r= a +31 +42 r2 = 02 +241 +2, where a, and a2 are constants. Furthermore, there is a risk-free asset with a rate of return of 10%. It is known that F= 20% and 2 = 15%. What are the values of Ao. A and A2 which represent the prices of risk?

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