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

Ri
RF  1F1  2F2  3F3 Assume there is no firm-specific risk. The information for each stock is presented here:

The risk premiums for the factors are 5.5 percent, 4.2 percent, and 4.9 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 of your portfolio? If the risk-free rate is 5 percent, what is the expected return of your portfolio? LO.1