Consider the multifactor APT with two factors. Stock A has an expected return of28.7%, a beta of 1.16 on factor1, and a beta of 0.67 on factor 2. The risk premium on the factor 1 portfolio is2.7%. Therisk-free rate of return is3%. What is therisk-premium on factor 2 if no arbitrage opportunitiesexist?

A.

4%

B.

7.75%

C.

15.91%

D.

3%

E.

9.26%