#1. Suppose all stocks obey an APT two-factor model. A given stock has a beta of .5 with respect to factor 1 and a beta of 1.5 with respect to factor 2. The risk-free rate is 2%, the risk-premium on factor 1 is 5% and the risk-premium on factor 2 is 8%. What is the expected return on this stock? #2. Consider the same data as in the prior problem and assume that last year the actual value of factor 1 was 2% higher than expected and the actual value of factor 2 was 3% lower than expected. Given this extra information, what is your best guess of the return that the stock experienced last year? #3. Suppose all stocks obey an APT three-factor model. A given stock has a beta of .8 with respect to factor 1, a beta of 1.0 with respect to factor 2, and a beta of 1.2 with respect to factor 3. The risk-premium on factor 1 is 4%, the risk-premium on factor 2 is 6% and the risk-premium on factor 3 is 8%. The expected return on the stock is 21%. What is the risk-free interest rate? #4. Suppose all stocks obey an APT two-factor model. The risk ee interest rate is 1%. Stock A has a beta of 1 with respect to factor 1 and a beta of 2 with respect to factor 2. Stock B has a beta of 2 with respect to factor 1 and a beta of l with respect to factor 2. The risk-premium on factor 1 is 4% and the risk-premium on factor 2 is 6%. An investor has a portfolio with $2,500 invested in stock A and $7,500 invested in stock B. (a) What are the betas on each of the two risk factors for the investor's portfolio? (b) What is the expected return on the investor's portfolio