1. Multifactor APT Suppose that the two factor portfolios, 1 and 2, have E(r) = 10% and E(r2) = 12% and the risk-free rate is 4%. A well-diversified portfolio A has betas BA,1 = 0.8 and BA,2 = 0.5. (a) What should be the expected return on A in equilibrium? (b) Suppose that the expected return on A is 15%. What is an arbitrage strategy? 1. Multifactor APT Suppose that the two factor portfolios, 1 and 2, have E(r) = 10% and E(r2) = 12% and the risk-free rate is 4%. A well-diversified portfolio A has betas BA,1 = 0.8 and BA,2 = 0.5. (a) What should be the expected return on A in equilibrium? (b) Suppose that the expected return on A is 15%. What is an arbitrage strategy