Portfolios and Factor Models You have recently been employed as a finance consultant to Bread plc.

The CEO wants to use an APT model to estimate the required return on the company’s stock, and the risk factors he plans to use in his model are the stock market risk premium, the inflation rate, and the price of wheat (since wheat is one of the major costs his company faces). He has asked for your opinion on his choice of risk factors. Is there anything he has overlooked? Is there anything he has not included that should be? Explain.