Return based on the one-factor arbitrage pricing model

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1. Suppose Carz common stock has a market factor beta of .9, the risk-free rate is 3.5 percent, inflation is expected to be 2.6 percent, and the expected market risk premium is 7.2 percent. What is the expected return based on the one-factor arbitrage pricing model?

a. 13.05%

b. 9.98%

c. 7.72 %

d. 12.32%

e. 12.58%

2. If you were to consider the CAPM as a one-factor model, then the factor would be the:

a. rate of inflation.

b. market risk premium.

c. GNP.

d. risk-free rate.

e. individual beta of each security or portfolio.

Reference no: EM131842107

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