Question: Suppose stock returns can be explained by the following three-factor model: R t = R F + Î² 1 F 1 + Î² 2 F

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

R_t = R_F + Î²₁F₁ + Î²₂F₂ €“ Î²₃F₃

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

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

The risk premiums for the factors are 6.1 percent, 5.3 percent, and 5.7 percent, respectively. If 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? If the risk-free rate is 3.2 percent, what is the expected return on yourportfolio?

Stock A Stock B Stock C 1.55 80 05 1.25 20 73 1,2s .os 4 24

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