easy · FRM Part 1 Valuation and Risk Models
According to the principles of Arbitrage Pricing Theory (APT), a stock's expected return is linked to three factors: GDP growth, inflation, and credit spreads. The factor betas are 0.5, -0.8, and 1.2 respectively, with risk premiums of 4%, 2%, and 3%.
If the risk-free rate is 3%, what is the APT expected return?
- 8.6%
- 7.0%
- 4.0%
- 12.0%
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