INV2 P2 2a You are exploring the use of APT in making investment choices. You have identified three factors labelled F 1 , F 2 , and F 3 with corresponding risk premia RP 1 = 4%, RP 2 = 5%, and RP 3 =...

INV2 P2 2a

You are exploring the use of APT in making investment choices. You have identified three factors labelled F₁, F₂, and F₃
with corresponding risk premia RP₁
= 4%, RP₂
= 5%, and RP₃
= 2%.

A stock with ticker ABC has historically shown returns which have followed the equation:

r_ABC=0.12+.75F₁+1.0F₂+.5F₃+e_ABC

What is the equilibrium rate of return for stock ABC using the APT, if the T-bill rate is 4%?