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5 . Multifactor Models. Suppose stock returns can be explained by a two - factor model. The firmspecific risks for all stocks are independent. The

5 .

Multifactor Models. Suppose stock returns can be explained by a two

-

factor model. The firmspecific risks for all stocks are independent. The following table shows the information for two diversified portfolios: If the risk

-

free rate is

4

percent, what are the risk premiums for each factor in this model?

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