The risk-free rate is 4 and the expected return on a, Financial Management

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The risk-free rate is 4 and the expected return on a

Suppose that a single factor APT holds. The risk-free rate is 4% and the expected return on a portfolio with unit sensitivity (sensitivity equal to 1) to the factor is 7%.

Consider a portfolio of two securities with the following characteristics:

Security Sensitivity to the factor Proportion in the Portfolio

A 0.8 0.3

B 1.7 0.7

According to APT, what is the portfolio's equilibrium expected return?

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