Set up the equations 15 = a + 1.0 bi1 +.6 bi2 14 = a + .5 bi1 + 1.0 bi2 10 = a + .3 bi1 + .2 bi2 You have 3 equations and 3 unknowns, a, bi1 and bi2. It's just an algebra problem. One way to do it is to take one of the equations and solve for "a" a = 10 - .3 bi1 - .2 bi2 substitute this into the other equations to eliminate "a" Now you have 2 equations and 2 unknowns. You can eliminate the second unknown by taking the first equation with "a" substituted in and multiplying it by 2 and subtracting the second equation from it. You'll be left with bi1 and one equation. Once you get that value, substitute it in to the equation to get bi2.

Ronald Moy i understood now.Thank you so much.

can you do a solution please?

If you look down at the comment to ho duc ninh I went over the explanation. See if that helps.

three equations three unknowns. See this..probably you read in your 9th grade but forgot :) www.themathpage.com/alg/simultaneous-equations-3.htm

+Tasnim Ibrahim If you look down at the comment to ho duc ninh I went over the explanation. See if that helps.

+Ronald Moy Great thank you

Will Candu This is an equilibrium pricing equation that says that the expected return is determined by the risk free rate and the systematic risk factors bi1, bi2. In the CAPM only beta differed for each stock. The risk free rate and the market risk premium were the same for all stocks. If an asset is priced correctly it should lie on the security market line. Here, all assets if priced correctly should lie on the plane. So if each asset had it's own alpha then we don't have an equilibrium pricing model.

Ronald Moy So, is the alpha that appears in the apt model the same is just the risk-free rate, or the intercept/constant of the APT model could be anything (i.e. E(ri), alpha, risk-free rate, zero-beta rate) that forms the model? thank you so much for answering

@@WCyoyoyo Ronald moy....any answer in this question??

Oh. My. God. It's a 3x3 system of linear equations. 3 variables. 3 unknowns. You need to be watching Sesame Street, not APT videos.

sir please, can you do a solution?

The solution and explanation is somewhere in the comments

Set up the equations 15 = a + 1.0 bi1 +.6 bi2 14 = a + .5 bi1 + 1.0 bi2 10 = a + .3 bi1 + .2 bi2 You have 3 equations and 3 unknowns, a, bi1 and bi2. It's just an algebra problem. One way to do it is to take one of the equations and solve for "a" a = 10 - .3 bi1 - .2 bi2 substitute this into the other equations to eliminate "a" Now you have 2 equations and 2 unknowns. You can eliminate the second unknown by taking the first equation with "a" substituted in and multiplying it by 2 and subtracting the second equation from it. You'll be left with bi1 and one equation. Once you get that value, substitute it in to the equation to get bi2.