6. Suppose there are two independent economic factors, M and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 45%. Portfolios A and B are both well diversified. PortfolioBeta on MiBeta on MExpected Return (%) 2.0 35 -0.6 13 A B 1.5 1.9 What is the expected return-beta relationship in this economy?

6. Suppose there are two independent economic factors, M1 and M2. The risk-free rate is 4%, and all stocks have independent firm-specific components with a standard deviation of 45%. Portfolios A and B are both well diversified. What is the expected return-beta relationship in this economy