I have a question about Arbitrage Pricing Theory that I cannot solve or understand.
The formula I am using is
R(i) = (1 - b1 - b2)R(f) + b1(F1) + b2(F2)
The question I am asked says:
Explain how to make a risk-free return of 3.5% if R(i) = 4%.
I am confused by the wording of the question. I also have figures for the b1,b2,F1,F2 from the previous part of the question but I don't know if they are needed here. I will supply them anyway.
b1 = b2 = 1/4, R(f) = 1%, F1 = 2%, F3 = 3%


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