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Assume that the APT holds for the following two stocks. Stock A: rA,t = 9 + 4F1,t + 2F2,t + eA,t Stock B: rB,t =

Assume that the APT holds for the following two stocks.

Stock A: rA,t = 9 + 4F1,t + 2F2,t + eA,t

Stock B: rB,t = 7 + 1F1,t + 4F2,t + eB,t

Riskfree: rf = 1

Consider a stock C with the following factor structure: rC,t = 25 + 3F1,t + 4F2,t + eC,t structure. Is this stock underpriced or overpriced compared to A and B? What is the alpha for this stock?

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