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6. (1.5 pts) Consider a two-factor APT. The two factors are M1 and M2. The risk-free rate is 5%. The risk premium for MI (RMI)
6. (1.5 pts) Consider a two-factor APT. The two factors are M1 and M2. The risk-free rate is 5%. The risk premium for MI (RMI) -8.71%. Portfolios A and B are well diversified. Given the data below, calculate the risk premium for M2 (i.e., Rx) and expected return for Portfolio B based on , Portfolio Beta on Mi Beta on M2 APT-based E(r) A 1.5 1.75 35% B 0.65 ? (Hint: use the two-factor APT model: E(r) + BiRMi + BluRm2) 1.0
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