INV2 P2 2a You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%. A stock with ticker ABC has historically shown returns which have followed the equation: rABC=0.12+.75F1+1.0F2+.5F3+eABC What is the equilibrium rate of return for stock ABC using the APT, if the T-bill rate is 4%?

Essentials Of Investments
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ISBN:9781260013924
Author:Bodie, Zvi, Kane, Alex, MARCUS, Alan J.
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Chapter1: Investments: Background And Issues
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INV2 P2 2a

You are exploring the use of APT in making investment choices. You have identified three factors labelled F1, F2, and F3 with corresponding risk premia RP1 = 4%, RP2 = 5%, and RP3 = 2%.

A stock with ticker ABC has historically shown returns which have followed the equation:

rABC=0.12+.75F1+1.0F2+.5F3+eABC

What is the equilibrium rate of return for stock ABC using the APT, if the T-bill rate is 4%? 

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