Q22

Consider the multifactor model with two factors. Stock A has an expected return of 26.90%, a beta of 1.43 on factor 1 and a beta of 0.89 on factor 2. The risk premium on the factor 1 portfolio is 5.7%. The risk-free rate of return is 8.2%. Assume that Stock B has a beta of 1.09 on factor 1 and a beta of 2.05 on factor 2.

Which of the following is the closest to the expected return on Stock B if no arbitrage opportunities exist?

Select one:

a. 37.46%

b. 36.29%

c. 53.09%

d. 56.26%

e. 38.71%