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.