Question 1 An investor believes there are three important factors that determine the expected return for a common stock. The investor uses the following factor betas and factor exposures. | Factors | Factor Betas | Factor Exposures | |---------|--------------|------------------| | 1 | 0.7 | 1.5% | | 2 | 1.2 | 4.0% | | 3 | -0.1 | 5.0% | If the risk-free rate is 3%, what is the expected return for this stock using the arbitrage pricing theory (APT) model? | Financial Risk Manager Part 1 Quiz - LeetQuiz

Explanation:

E(R) = 0.03 + 0.7(0.015) + 1.2(0.04) - 0.1(0.05)

E(R) = 0.03 + 0.0105 + 0.048 - 0.005

E(R) = 0.0835

(Book 1, Module 6.2, LO 6.e)

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Question 1

An investor believes there are three important factors that determine the expected return for a common stock. The investor uses the following factor betas and factor exposures.

Factors Factor Betas Factor Exposures
1 0.7 1.5%
2 1.2 4.0%
3 -0.1 5.0%

If the risk-free rate is 3%, what is the expected return for this stock using the arbitrage pricing theory (APT) model?

Factors	Factor Betas	Factor Exposures
1	0.7	1.5%
2	1.2	4.0%
3	-0.1	5.0%

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RRohit

Last updated: June 26, 2026 at 17:00

5.35%.

8.35%.

9.50%.

10.37%.

Financial Risk Manager Part 1

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