#2. One-factor APT. The risk-free rate is 8%. Here is the info on two stocks. The exp return is backed out of the discounting formula for the price of a stock P0=D1/(E[r]g). Compute the expected return on the market implied in the Stock X expected return APT: E[rx]=rf+B(E[rM]rf) solve for E[rM]= Using the computed exp return on the market, Stock Y's expected return should be APT: E[rr]=rf+B(E[rM]rf) E[rY] % Comparing the exp return of 12% on Stock Y implied in its price to the computed risk-based exp return on Stock Y, we conclude that To construct an arbitrage portfolio, we buy Stock and we short Stock