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4) Suppose that there are two independent economic factors F1 and F2. The risk-free rate is 5%, and all stocks have independent firm-specific components with

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4) Suppose that there are two independent economic factors F1 and F2. The risk-free rate is 5%, and all stocks have independent firm-specific components with a standard deviation of 45%. The following are well-diversified portfolios: Portfolio Beta on F1 Beta on F2 Expected Return A 1 2 19% 2 24% What is the expected return-beta relationship in this economy

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