2.Assume both portfolios A and B are well diversified, that E(r_A) = 15.8% and E(r_B) = 18.8%. If the economy has only one risk factor, and _A = 1 while _B = 1.3, what must be the risk-free rate? (Do not round intermediate calculations. Enter your answer as a percentage rounded to 1 decimal places.)

Risk-free rate

%

3.Suppose two factors are identified for the U.S. economy: the growth rate of industrial production, IP, and the inflation rate, IR. IP is expected to be 3% and IR 7%. A stock with a beta of 1 on IP and 0.4 on IR currently is expected to provide a rate of return of 12%. If industrial production actually grows by 4%, while the inflation rate turns out to be 8%, what will be your expected rate of return on the stock, given the new information about the industrial production rate and the inflation rate? (Enter your answer as a percentage rounded to 1 decimal places.)

Expected rate of return

%