Suppose that a two-factor model, where the factors are the market return and the growth rate of industrial production, correctly describes the risk-return characteristics of all assets. Consider two well-diversified portfolios A, B, and C with the following characteristics. The risk-free rate is 5%. Portfolio Expected Return Sensitivity to Factor 1 Sensitivity to Factor 2

A 10% 1 -1

B 15% 0.5 1

C ? 0 0.5

What is the APT-consistent expected rate of return on C?

a) 12.5%

b) 2.5%

c) 7.5%

d) 17.5%