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  3. 4. assume that there are two factors that price as

4. Assume that there are two factors that price assets. Risk free rate is 3%....

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Accounting

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4. Assume that there are two factors that price assets. Risk free rate is 3%. Factor 1 has an expected return of 7% and factor 2 has an expected return of 9%. Calculate the expected return for each asset with the following sensitivities using the Arbitrage Pricing Theory (APT): (a) 1=1,2=0.8;(5 marks ) (b) 1=1.2,2=0.50;(5 marks ) (c) 1=0.8,2=1.5.(5marks)

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