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Basic Question 2 of 11
Consider a well-diversified portfolio, A, in a two-factor economy. The risk-free rate is 6%, the risk premium on the first factor portfolio is 4%, and the risk premium on the second factor portfolio is 3%. If portfolio A has a beta of 1.2 on the first factor and .8 on the second factor, what is its expected return?
B. 10.3%
C. 13.2%
A. 8.0%
B. 10.3%
C. 13.2%
User Contributed Comments 1
| User | Comment |
|---|---|
| rt2007 | 6 + 1.2*4 + 0.8*3 = 13.2 |
I passed! I did not get a chance to tell you before the exam - but your site was excellent. I will definitely take it next year for Level II.
Tamara Schultz
Learning Outcome Statements
describe arbitrage pricing theory (APT), including its underlying assumptions and its relation to multifactor models;
define arbitrage opportunity and determine whether an arbitrage opportunity exists;
calculate the expected return on an asset given an asset's factor sensitivities and the factor risk premiums;
CFA® 2024 Level II Curriculum, Volume 5, Module 41.