Consider the multifactor APT with two factors. The risk premiums on the factor $1$ and

factor $2$ portfolios are $5\%$ and $6\%,$ respectively. Stock A has a beta of $1\mathrm{.}2$ on factor$-1,$ and a beta

of $0\mathrm{.}7$ on factor$-2.$ The expected return on stock A is $17\%.$ If no arbitrage opportunities exist, the

risk$-$free rate of return is

A$)6\mathrm{.}0\%.$

B$)6\mathrm{.}5\%.$

C$)6\mathrm{.}8\%.$

D$)7\mathrm{.}4\%.$

Ans: $C$