17. Dode Cicero owns a portfolio of two securities. On the basis of a two-factor model, the two securities have the following characteristics:

The factors are uncorrelated, Factor 1 has an expected value of 15% and a standard deviation of 20%. Factor 2 has an expected value of 4% and a standard deviation of 5%. Calculate the expected return and standard deviation of Dode's portfolio. [Hint: Think about how Equation (l0.6a) could be extended to a twofactor model by considering Equation (10.9).]

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Security Zero 1 Factor Factor 1 Sensitivity A 2% .30 Factor 2 Sensitivity 2.0 Nonfactor Risk (0) Proportion 196 .70 B .50 1.8 100 .30