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If APT identifies two factors with sensitivities b1 = 0.7 (industrial production, risk premium 4%) and b2 = 0.5 (inflation, risk premium 2%), with risk-free 6%, the expected return is:
A8.8%
B9.8%
C10.0%
D9.0%
Answer & Solution
Correct answer: B. 9.8%
1. Identify what the question asks: this concept maps to aptmultifactor (§8).
2. Apply the framework or formula relevant to the topic.
3. Eliminate distractors and arrive at the correct option (B).
_Source: ICAI BoS CA Final Paper 2, Ch 6 "Portfolio Management"_
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