Question: write clearly, all steps please. Consider the three-factor APT model. The factors and associated risk premiums are: Calculate the expected returns on the following stocks.

 write clearly, all steps please. Consider the three-factor APT model. The

write clearly, all steps please.

Consider the three-factor APT model. The factors and associated risk premiums are: Calculate the expected returns on the following stocks. The risk free rate is 7%. a)A stock whose return is uncorrelated with all three factors. b)A stock with average exposure to each factor A pure energy related stock. (beta =2 for the energy factor but 0 otherwise) Hints: 1. pay attention to the rf on the left hand side of the bottom equation > don't forget it when you do expected return E(Ri)rf=1(E(F1)rf)+2(E(F2)rf)+3(E(F3)rf)

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