Mathematics · Arbitrage Pricing Theory
Consider a security analyzed under the Arbitrage Pricing Theory (APT) framework with three macro-economic factors: Factor 1: β1 = 0.8, Risk Premium = 5% Factor 2: β2 = 1.2, Risk Premium = 3% Factor 3: β3 = -0.5, Risk Premium = 2% Risk-free rate (Rf) = 2% Calculate the expected return of the security:
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