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# Suppose the returns on Security B are linearly related to four risk factors: F1, F2, F3, and F4. The ...

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Suppose the returns on Security B are linearly related to four risk factors: F1, F2, F3, and F4. The required rate of return on Security B can be determined as follows: E(RA) = a0 + b1F1 + b2F2 + b3F3 + b4F4. The risk-free rate is 5%. What is the risk premium for F4, if the required return of Security B is 20%, b1, b2, b3, and b4 are 0.5, 0.7, 0.6, and 0.9, respectively, and F1, F2, and F3 are 4.25%, 5.75%, and 6.5%, respectively?

▸ 11.06%

▸ 5.50%

▸ 4.95%

▸ 7.42%
Textbook

## Corporate Finance

Edition: 5th
Author:
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LaceyCGibsonLaceyCGibson
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