The APT itself does not provide guidance concerning the factors that one might expect to should researchers decide which factors to investigate? Why, for example, is industrial production a reasonable factor to test for a risk premium?

If the APT is to be a useful theory, the number of systematic factors in the economy must be small. Why?

Suppose that there are two independent economic factors, $F_1$ and $F_2.$ The risk$-$free rate is $6\%,$ and all stocks have independent firm$-$specific components with a standard deviation of $45\%.$ Portfolios A and $B$ are both well$-$diversified with