Assume there are three factors that price assets and there is an asset with no systematic risk that

earns a risk$-$free rate of return of $5\%.$

i$)$ Use the arbitrage pricing theory to determine the equilibrium rate of return on this asset that is

generated according to the following equation.

ii$)$ Suppose the market expected the values for the $3$ macro factors given in row $3,$ but the actual

values turn out as given in row $4.$ Calculate the revised expectations for the rate of return on

the asset once the "surprises" become known.

$r=8\%+1\mathrm{.}2F_1+1\mathrm{.}0F_2+0\mathrm{.}5F_3+e$