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1. Assume that a stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows

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1. Assume that a stock returns can be explained by a two-factor model. The firm-specific risks for all stocks are independent. The following table shows the information for two diversified portfolios: Beta 1 Beta 1 E(R) Portfolio 0.55 1.45 0.32 Portfolio 1.95 -0.25 0.38 B If the risk-free is 7%, what are the risk premium for each factor in this model

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