4) Suppose that there are two independent economic factors FI 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 19% 24% What is the expected return-beta relationship in this economy? 5) Is there an arbitrage opportunity given the following three portfolios (assume that CAPM holds)? If yes, construct an arbitrage portfolio. What is the portfolio expected return? Portfolio Expected Return Beta FINC 335 Investments Homework 3 Due: Oct. 23 16% 12% 4) Suppose that there are two independent economic factors FI 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 19% 24% What is the expected return-beta relationship in this economy? 5) Is there an arbitrage opportunity given the following three portfolios (assume that CAPM holds)? If yes, construct an arbitrage portfolio. What is the portfolio expected return? Portfolio Expected Return Beta FINC 335 Investments Homework 3 Due: Oct. 23 16% 12%